Fossil Fuel Investments Yield Big Returns for State Pension Funds

The oil and gas industry has been one of the better investments made by Michigan’s two largest government employee pension funds, according to a recent report by Sonecon LLC, a Washington D.C. economic advisory firm.

The report examined the combined investment returns of Michigan's separate pension funds for school and state employees. Together, their investments in oil and natural gas companies gave a rate of return that was 37 percentage points higher than the return on all of their investments. Oil and gas investments outpaced investments in other industries by 43 percentage points.

Due to chronic underfunding, both pension funds have unfunded liabilties: $25.8 billion in the school employee retirement system, and $5.4 billion in the smaller one for state employees.

The Sonecon report looked at investments from 2005 to 2013. It found the cumulative return on assets from the state’s two largest pension funds was about 81 percent while oil and natural gas assets produced a 118-percent return over the eight-year period.

The study stated: “Oil and natural gas investments, which represented 4.2 percent of the total assets of Michigan's two largest public employee pension plans, contributed 6.9 percent of their total gains over the period, FYs 2005 to 2013.”

Overall, Michigan’s two largest state pension funds had $2.4 billion in returns from oil and natural gas investments from 2005 to 2013.

John Griffin, the Michigan spokesman for the American Petroleum Institute, said on average, $1 invested in oil and natural gas stocks in 2005 was worth $2.18 in 2013. By contrast, $1 invested in all other assets over the same period was worth $1.75.

“During good economic times – or challenging ones – oil and natural gas investments far outperformed other public pension holdings in Michigan,” Griffin said in an email. “We already know that a healthy domestic oil and natural gas industry is good news for jobs and government revenue, and we now know that it also provides stability to the nest eggs that millions of Americans are counting on for a secure retirement.”

“Millions of Americans with a 401k, mutual fund, or pension also rely on the income and capital growth these companies provide for their retirement,” Griffin said. “America’s oil and natural gas companies are owned by tens of millions of Americans, according to a previous Sonecon study.”

Nevertheless, activist groups on college campuses have sought to force universities to divest from oil and gas investments because they believe the industry is harming the environment.

In April, 33 students and alumni involved with a group called Tufts Climate Action performed a 55-hour sit-in at Tufts University, occupying the office of President Anthony Monaco. The Boston Globe reported the protest ended when the group was granted a meeting with the university's trustees.

Harvard University also had student sit-in protests asking for divestment from fossil fuel companies in February.

Michigan Environmental Council spokesman Andy McGlashen declined an opportunity to comment on this story. Emails seeking comment sent to Fossil Fuel Divestment Student Network and Benjamin Weilerstein, a Tufts student protester, were not returned.