US - The California Public Employees' Retirement System (Calpers) lost US$284.6m in value as the largest oil spill in U.S. history erased more than US$1.4bn from BP shares held by 42 state retirement accounts, data compiled by Bloomberg shows.
BP, the biggest producer of oil and gas in the U.S., has lost 47% of its value since a Gulf of Mexico well blew out on April 20, destroying the Deepwater Horizon drilling rig, killing 11 of its crew and polluting beaches from Louisiana to Florida.
The declines come as public pension funds are struggling to recover from investment losses that averaged 21% last year, according to Wilshire Associates of Los Angeles. U.S. public pension systems held more than 300 million shares of London-based BP, according to Bloomberg data through May 1.
Calpers, the largest U.S. public pension at $210 billion, held 58.2 million shares of BP on April 20, more than any other state pension, and saw the value fall to US$301m from US$585.7m, according to Bloomberg data.
"Calpers has a well-diversified portfolio and long-term investment strategy to weather these ups and downs, even those caused by unusual circumstances such as this one," said Brad Pacheco, a spokesman. "We will be engaging BP on corporate governance to discuss the impact of the crisis on the value of the company."
The Gulf of Mexico oil spill sent BP's stock price to 349.5 pence in London trading yesterday from 642.5 on April 19.
The US$1.4bn in value lost by the pensions is a fraction for funds that manage more than US$2.4trn, the estimate for the 100 largest public pensions at the end of 2009, according to the Census Bureau. The top 100 funds account for more than 89% of total public pension value, the bureau reported.
"This will be less than one-half of a percent of our international holdings," said Laura Ecklar, spokeswoman for the US$58bn Ohio State Teachers' Retirement System, referring to the US$59m in BP shares in that fund's US$14bn international portfolio. "If we put it against all holdings, we're into a lot of decimal points."
Among public retirement funds with large holdings of BP, the California State Teachers' Retirement System, known as Calstrs, ranked second in value lost, at US$104.8m, followed by Florida at US$87.8m and the Texas Teachers Retirement System at US$84.5m, according to Bloomberg data.
The Texas fund, which reported a market value of US$96.7bn and record investment returns of 35% for the year ending March 31, said in a statement that sales of 8.1 million BP shares before and after the Deepwater accident lowered the total loss of value to US$39.7m since September, 2009.
"The US$39.7m reduction in the market value of its BP holdings is the equivalent of 0.04% of the total TRS fund," spokesman Howard Goldman. "Developments related to BP have had no material impact on the fund."
New Jersey's Division of Investment gained US$5.2mn on its BP holdings because it began selling off its 52 million- share stake in January, according to Treasury Department spokesman Andrew Pratt.
The state realized profits of about US$12m before the Deepwater Horizon explosion. New Jersey sold its last 20 million shares at a loss of US$9.1m between April 29 and May 11, Pratt said.
Calpers last week asked for a US$600m increase in the state's contribution toward benefit costs during the fiscal year that starts July 1.
Other affected funds, such as New York state's US$129bn Common Retirement Fund, which holds 17.5 million BP shares according to spokesman Robert Whalen, and the Pennsylvania School Employees Retirement System, whose BP holdings declined in value by about US$30m, according to spokeswoman Evelyn Tatkovski, are planning to cut retirement benefits and seek higher payments from taxpayers to offset investment losses.
The 100 largest public funds lost a total of US$165bn in the nine months that ended March 31, 2009, according to the Census Bureau.
Concerns about BP's share value and prospects prompted funds such as New Jersey and the US$26bn Retirement Systems of Alabama to sell all their BP holdings.
"We're headed in that direction," said Marc Green, Alabama's director of investments, who said the system has been selling off its 6.25 million BP shares as opportunities arise, because of uncertainty about BP's liability in the spill. "There's a lot of different moving parts that we can't get our arms around."
In New Jersey, the Deepwater accident accelerated a sales pattern that was already under way, Pratt said.
The Division of Investment "took their profits at a reasonable level and when they started to have problems, they got rid of the shares," Pratt said.
"This is conservative, responsible portfolio management, combined with some luck."
The collapse of BP's shares highlights the importance of a broad portfolio, said Keith Brainard, a researcher for the Louisiana-based National Association of State Retirement Administrators.
"There's a great lesson that public pension funds are learning, and that's the importance of diversification," he said. "I would expect the effect on public pension funds to be minimal."
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