2 Texas funds' iShares ETFs not on divest list

Two big Texas retirement systems between them held iShares exchange-traded fund investments totaling about $436 million, 13F holdings reports show, and, despite Texas officials’ feud with BlackRock Inc., it doesn’t look like they’ll be required to divest those holdings, assuming they still have them.

BlackRock, the world’s largest money manager and the provider of iShares ETFs, was included on Texas Comptroller Glenn Hegar’s list of financial companies that boycott energy companies, which he announced in an Aug. 24 news release.

Mr. Hegar was required to prepare the list in accordance with Senate Bill 13, which became law in September 2021. Listed companies are subject to the divestment provisions included in Texas Government Code Chapter 809, which, as the release noted, defines a financial company as a publicly traded financial services, banking or investment company.

The environmental, social and governance investing movement has produced a system in which some financial companies have stopped making decisions that are in the best interests of their shareholders or clients, but instead use their “financial clout” to push a social and political agenda cloaked in secrecy, Mr. Hegar said in the release.

However, Mr. Hegar wasn’t the only one to detect a whiff of politics.

“Let’s be honest: This is entirely performative,” said Dave Nadig, a Lenox, Mass.-based financial futurist at VettaFi LLC, a data and analytics provider, of the law. “This won’t make one bit of difference in the valuation of any energy company, and it won’t put one more well in the ground, but I’m sure it makes for great fundraising.”

State governmental entities subject to the divestment requirements include the $184.4 billion Teacher Retirement System of Texas and the $33 billion Employees Retirement System of Texas, both based in Austin. According to their 13F reports filed with the Securities and Exchange Commission for the quarter ended June 30, TRS and ERS held roughly $436 million worth of investments in iShares ETFs and $32.4 million of BlackRock stock between them.

A 13F report wasn’t available for the roughly $45 billion Texas County and District Retirement System, which is also among entities subject to the divestment requirements. Asked why a 13F report wasn’t available, a TCDRS spokesman said it doesn’t hold a lot of direct investments and consequently doesn’t meet the threshold for reporting.

Regarding Mr. Hegar’s list, “TCDRS has no direct holdings in the companies identified in the comptroller’s letter of August 24, 2022, concerning financial companies that boycott energy companies pursuant to Chapter 809 of the Texas Government Code,” the spokesman said.

In a statement, BlackRock disagreed with the comptroller’s opinion, saying it wasn’t based on fact.

“BlackRock does not boycott fossil fuels — investing over $100 billion in Texas energy companies on behalf of our clients proves that,” the money manager said in its statement, which also said elected and appointed public officials have a duty to act in the best interests of the people they serve. “Politicizing state pension funds, restricting access to investments, and impacting the financial returns of retirees, is not consistent with that duty.”

While Mr. Hegar’s initial list included 10 financial companies, the news release also said that comptroller’s office staff researched individual investment funds and generated a list of nearly 350 funds that are subject to the same provisions. The 10 companies listed are referred to on the comptroller’s website as Annex I, while the funds are under the tab Annex II.

None of the iShares ETFs reflected in the 13F reports TRS and ERS filed were among the funds listed in Annex II. Asked for clarification on whether that meant that TRS and ERS would be able continue to hold an ETF not listed in Annex II, a spokesman for Mr. Hegar’s office said the statute’s divestment requirements only apply to listed financial companies.

“As such, if a fund or company is not listed, the divestment requirements do not apply,” the spokesman said. “Of course, nothing precludes an investing entity from taking a broader view of Annex I and divesting from other related financial entities by way of its own policies and procedures. Those decisions are left to the investing entities.”

Mr. Nadig said that, based on their 13F holdings reports, the impact on TRS and ERS following Mr. Hegar’s Aug. 24 announcement is likely to be negligible. Still, “the right answer here is to have boards for these pensions who act in the best interests of the plan,” he said.

“I’m quite certain those people exist, and I wonder how they feel about being sidelined by legislators,” Mr. Nadig said.

A TRS spokesman declined to comment on whether it continued to hold the iShares ETF investments and BlackRock shares reflected in its 13F. The TRS spokesman, however, provided a statement from Executive Director Brian Guthrie.

“The Teacher Retirement System of Texas continues to review the comptroller’s list of companies that boycott the fossil fuel sector to identify and evaluate the scope of impact,” Mr. Guthrie’s statement said. “As outlined in statute, we will report on our holdings in these companies to the state comptroller within 30 days of the list’s release.”

Until then, “it would be premature to offer any definitive information on potential impact,” Mr. Guthrie’s statement said.

TRS’ 13F report shows it held about $354.7 million worth of investments in iShares ETFs as well as BlackRock shares valued at about $24.7 million.

A spokeswoman for ERS did not respond to an emailed request seeking comment regarding Mr. Hegar’s list. BlackRock’s iShares is the provider of ETFs with assets totaling $2.78 trillion as of June 30.