The matter of corporate tax inversions has dominated domestic economic policy in Washington over the past year. President Obama has slammed the corporate measure by accusing these companies of “gaming the system,” while Treasury Secretary Jack Lew has urged Congress to close the loophole in order to stop this from occurring.
One of the latest examples of corporate inversions is the recent Burger King-Tim Hortons merger. The $11.5 billion deal, which was partly financed by Warren Buffett, a longtime advocate of tax hikes, would see a brand new company headquartered in Canada, which would let the burger chain diminish its tax costs by around 46 percent.
It’s these types of moves that are actually making some of the biggest public pension funds profitable, according to a report published by the New York Times. The newspaper noted that these trillion-dollar pensions for public sector workers maintain substantial investments in corporations that renounce their corporate citizenship.
Although numerous public pension funds are quite vocal on domestic issues such as these, they have remained relatively quiet thus far. The Times cited the California Public Employees’ Retirement System (CALPERS) as an example of a public pension fund remaining silent on the matter.
“We don’t have a view on this from an investor standpoint — we’re globally invested, as you know, and appreciate that tax reform is a government role,” Anne Simpson, Calpers’s senior portfolio manager and director of global governance, told the newspaper. “We do expect companies to act with integrity, whatever the issue at hand — that goes without saying. We also want to see a focus on the long term.”
When asked specifically on corporate tax inversions, Simpson refused to comment any further.
The newspaper also spoke with the Florida State Board of Administration, a public pension fund that manages more than $150 billion, and the response was quite similar regarding its opinion on inversions.
“If you’re in my seat, you’re thinking about it not only as an investor, but you’re thinking about it as a fiduciary, which sort of walls out a lot of the political considerations that might otherwise be there,” averred Ash Williams, executive director and chief investment officer of the Florida fund. “You just have to think, ‘OK, so I’m guarding the economic interest of my beneficiary. That is my duty, and that’s the start, the middle and the end of it.’”
In recent days, industry experts and pundits have opined that it’s difficult for Democratic lawmakers to put forward legislation and for union leaders to attack inversions since one of the administration’s biggest allies, Warren Buffett, is actually investing in the Burger King-Tim Hortons merger. There have been calls, though, to boycott Burger King and to use other competing fast food chains, like White Castle and Wendy’s.
Until Washington enacts policies to limit inversions, investors and public pension fund heads are enjoying their growing returns.