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ST. LOUIS POST-DISPATCH: Steelman is a terror with state fund

EXTRACT: Two already have been tossed out: Royal Dutch Shell, for drilling for oil in Iran, and Deutsche Bank, for helping the Iranian government with a bond issue.


By David Nicklaus

A $6 million fund is barely a drop in the sea of global investments, but it’s making a big splash for Missouri Treasurer Sarah Steelman.

CNBC’s Maria Bartiromo has interviewed Steelman about this relatively tiny pot of money. Forbes magazine has written about it. They’re interested not in what the money buys but in what it doesn’t: Steelman has worked with an adviser to keep the state’s money out of any company that does business in Cuba, Iran, North Korea, Sudan or Syria.

U.S. companies are prohibited from doing business in those nations, which the U.S. government says are state sponsors of terrorism. But some foreign companies have no qualms about going where the Americans can’t. And, until recently, the state of Missouri was a shareholder in some of them.

The treasurer manages the Missouri Investment Trust, a $27 million fund that collects taxes paid by entertainers and athletes and funnels its earnings to cultural organizations within the state. Nearly a quarter of the trust’s assets had been in a passively managed international index fund.

Two months ago, Steelman, a Republican, announced that State Street Global Advisors would set up a new “enhanced index” fund to handle the $6 million of international investments. It will own between 85 and 125 stocks, and it uses a consulting firm, Conflict Securities Advisory Group, to make sure none of those companies does business with the Axis-of-Evil nations.

About 15 companies in the old portfolio probably would be disqualified from the new fund, Steelman said. Two already have been tossed out: Royal Dutch Shell, for drilling for oil in Iran, and Deutsche Bank, for helping the Iranian government with a bond issue.

“Public dollars should never be used to support terrorism,” Steelman said. “And, secondly, investments that have ties to terrorism could be risky and unwise investments.”

Before setting up the small fund at State Street, Steelman had prodded the $6.9 billion Missouri State Employees Retirement System to rid itself of terrorism-tainted investments. One target was an $80,000 investment in Arab Bank, which MOSERS owned through an index fund.

The Arab Bank shares have since been sold for investment reasons, MOSERS Executive Director Gary Findlay said, and the MOSERS board has adopted a process for screening companies that pop up on a terrorism watch list. But Steelman isn’t ready to declare victory: In a letter written June 15, she criticizes the MOSERS board for making its terrorism-screening decisions in closed meetings.

Steelman said she hopes to influence other Missouri pension funds, and other state treasurers, to avoid the same stocks she’s avoiding. “I feel like we are doing what we can do to fight and help our American soldiers in the fight against terrorism,” she says.

A couple of solid objections can be made to such wrap-yourself-in-the-flag investing. One comes from portfolio theory: If you’re trying to match the performance of an index, while excluding major index components like Royal Dutch Shell, it’s like entering a wrestling match with one arm tied behind your back. Returns are likely to suffer.

The other objection is a constitutional one. International diplomacy is the responsibility of the president and secretary of state, not 50 state treasurers. Divestment policies “can have a substantial effect in terms of the unity of U.S. foreign policy,” says Gary Hufbauer, a senior fellow at the Institute for International Economics in Washington. “They make the diplomats’ job that much more difficult.”

Such objections don’t sway Steelman. For her, morality trumps practicality on this issue. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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