State Pensions Fought Guns and Tobacco. Why Aren’t They Divesting From Opioids?

(Bloomberg) -- State pension funds have historically taken stands against controversial industries, like firearms and tobacco, sometimes divesting their investments to push companies to act.

But in the opioid crisis, which has generated hundreds of lawsuits seeking to hold manufacturers and distributors accountable, the funds have mostly stayed on the sideline so far. Some of the biggest ones, including New York and California pension funds, hold investments in Endo International, the largest maker of branded opioids after privately held Purdue Pharma LP. Even in West Virginia, which has been racked by opioid-related deaths, the state pension fund has a $1.8 million equity stake in Endo.

“West Virginia is literally and metaphorically ground zero for both the opioid epidemic and litigation,” said Charles Webb, an attorney at Webb Law Centre, which represents towns that brought suits. While local West Virginia unions have been outspoken about the epidemic, Webb said he hasn’t heard any outcry from the state pension fund. The fund did not respond to requests for comment.

State Pensions Fought Guns and Tobacco. Why Aren’t They Divesting From Opioids?

The opioid investments, to be sure, are tiny relative to the funds’ overall assets. And pension fund members may not know they are invested in the opioid industry. Many fund investments are held through indexes, which are passive vehicles, said Keith Brainard, research director for the National Association of State Retirement Administrators. The New York State Teachers’ Retirement System, which manages about $122 billion, holds $3.1 million in Endo stock, about 75 percent through passively held indexes, a spokesperson said.

Funds including California’s and New York’s say they generally oppose divesting from controversial companies because it doesn’t change corporate behavior. Instead, they say they try to engage with management through activist measures. The California State Teachers’ Retirement System, CalSTRS, has been active with a group called Investors for Opioid Accountability, which represents 54 institutions. New York’s fund said it has asked opioid manufacturers to address potential financial, legal and reputational risks.

Still, the opioid epidemic has made for awkward situations. In Florida, former state attorney general Pam Bondi filed a lawsuit in late 2018 against more than a dozen opioid manufacturers and distributors, including Endo. At the time, Bondi sat on the board of the Florida Retirement System Pension Fund. The fund is invested in both Endo and Insys Therapeutics, Inc., another opioid maker that was part of her lawsuit.

The attorney general "does not get involved in the day-to-day operations of the pension fund," said John Kuczwanski, the fund’s manager of external affairs.

State Pensions Fought Guns and Tobacco. Why Aren’t They Divesting From Opioids?

Unlike the firearms industry, which hasn’t yielded notable returns in years, Endo was a profitable investment for nearly a decade, hitting a peak in 2015. It’s since fallen dramatically, tanking 24 percent after OxyContin maker Purdue was reported to be exploring bankruptcy.

Endo has been open to talking to institutional investors and recently held a "constructive engagement" with them, according to a spokesperson. The company no longer markets opioid products and withdrew one pain product, Opana ER, from the market altogether.

State Pensions Fought Guns and Tobacco. Why Aren’t They Divesting From Opioids?

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