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Blog Post | November 10, 2021

A Fossil Fuel-Aligned Investment Executive Is Biden's Final Nominee to Manage Federal Retirement Funds

2020 Election/TransitionClimateIndependent Agencies
A Fossil Fuel-Aligned Investment Executive Is Biden's Final Nominee to Manage Federal Retirement Funds

Harvard President Larry Bacow announced mid-afternoon on September 9th that the Ivy League university — whose 53.2 billion endowment exceeds the GDP of over 100 countries — would officially end its investments in fossil fuels. That announcement set off a domino reaction of divestment announcements from Dartmouth, the California State University system, Boston University, the University of Minnesota, the University of Toronto, the MacArthur Foundation, the Ford Foundation, the Netherlands’ largest pension fund, and hundreds of other groups. They appear to see the writing on the wall that fossil fuel investments, beyond being morally egregious, are also no longer profitable.

The United States’ largest public pension fund, the federal government’s Thrift Savings Plan (TSP), has not yet squared with this reality. But divestment here is within reach. Almost three months to the day after nominating four out of five board members to the Federal Retirement Thrift Investment Board (FRTIB), the board which manages the TSP, Biden announced his fifth and final nominee: Michael F. Gerber. 

In March, the Revolving Door Project emphasized that the chance to nominate all five members of the FRTIB was a “Slam Dunk Climate Opportunity” for a president who had promised to take a whole-of-government approach to fighting climate change. The FRTIB regulates nearly $800 billion in federal employees’ retirement money, a number which exceeds the GDPs of Saudi Arabia and Switzerland. If the FRTIB chose to divest from fossil fuels, it would change the global divestment conversation, and demonstrate America’s capacity to address the “challenge of our collective lifetime.” 

Executive branch assessments — from a GAO report published this year to the Department of Labor’s current study to the actual laws that govern the FRTIB — are so far mixed on the FRTIB’s legal ability to factor climate risk into their investment decisions and subsequently choose divestment. (The Biden executive branch is currently pursuing rulemaking elsewhere to enshrine fiduciaries’ abilities to consider environmental, social, and governance factors in their investment advising.) But FRTIB does have a duty to act in the best financial interests of the nearly six million people who participate in the TSP. And funds without fossil fuels are consistently outperforming funds with fossil fuels. Divestment isn’t just morally right, it’s also financially obvious.

Biden has made his FRTIB nominations with decent haste, especially considering we are still waiting on an announcement about our next Federal Reserve Chair, a director for the Office of Management and Budget, a director for the Office of Information and Regulatory Affairs, and other essential appointees. But his choice of Gerber as the final nominee tips the balance of the five-member board into concerning territory. If they are each confirmed, Gerber will join Javier Saade, a fintech darling on the board of a shell company (read more about SPACs here,) and Stacey Olivares, an “experienced C-suite executive” with experience at Morgan Stanley; a shell company different from Saade’s; and CalPERS, the California retirement system with $30 billion invested in fossil fuels. The two potentially decent nominees, repeat nominee Dana Bilyeu and San Francisco divestment advocate Leona Bridges, will have their work cut out for them to persuade their colleagues to do the right thing, merely because it remains unintuitive to much of the industry. 

So, who exactly is Michael Gerber? He is currently the Chief Corporate Affairs Officer at FS Investments, an alternative investment firm which manages $25 billion in assets. Alternative investments — as opposed to traditional investments, which include publicly traded stocks — are conventionally the domain of institutions and the rich, and include private equity, venture capital, private real estate, hedge funds, and more. One of the things that makes them “alternative” is that they are almost completely unregulated. Another name for much of the alternative investment world is “shadow banking.” FS Investments touts itself as making alternative investments accessible to retail investors—a marketing appeal to wealthy individuals eager for yield which should not be confused with an effort towards financial reform.

Michael Gerber is charged with overseeing FS Investments’ corporate social responsibility and environmental, social and governance (ESG) initiatives, as well as leading FS’s diversity and inclusion strategy. But evaluating his work on those fronts at FS Investments is a challenge, given how little evidence there is of any such initiatives. 

FS Investments has no dedicated ESG funds. Of their interval funds, four of the top ten holdings are directly engaged in fossil fuel extraction, production and distribution: Petroleos Mexicanos, the Mexican state-owned oil and methane gas company; Shelf Drilling Holdings Ltd., a United Arab Emirates-based offshore drilling company; Weatherford International Ltd., a multinational oilfield service company; and California Resources Corp., an American oil and natural gas company. (The interval funds’ second largest holding, the Puerto Rico Electric Power Authority, may also be considered to be engaged in fossil fuel distribution, since as of 2020 97.5 percent of Puerto Rico’s electricity supply came from fossil fuels.) FS Investments’ mutual funds look no better: top holdings across the funds include Royal Dutch Shell plc, Plains All American Pipeline, Tourmaline Oil Corp, and Targa Resources Corp. To add insult to injury, FS Investments’ Energy & Power Fund is so heavily weighted towards fossil fuels that renewables are practically a footnote; fossil fuels make up all of its top holdings and the vast majority of its $2.34 billion dollar portfolio. 

FS Investments’ intransigence when it comes to staying invested in the soon-to-be stranded assets of oil, coal, and methane gas may be something of a firm philosophy. Gerber explained in a Wharton interview that FS Investments considers their funds to be “permanent capital vehicles” which they expect to “exist in perpetuity.” Such a long-range point of view makes their continued investment in the sinking ship of fossil fuels all the stranger. 

FS Investments’ most recent energy investments, on the other hand, lean heavily solar: Altus Power, True Green Capital Management, Beltline Energy. If their investments in renewable energy were anything close to the scale of their current investment in fossil fuels, and if that pivot were accompanied by fossil fuel divestment, this would be an encouraging sign. But if FS Investments’ energy portfolio is any indication of how Michael Gerber will oversee the TSP’s almost $800 billion in retirement assets, we can expect hardly any mitigation of the substantial economic and planetary risk of continued fossil fuel investment. And federal workers’ retirement plans will pay the price.

FS Investments has no qualms with harming workers in general. It partnered with KKR Credit to create FS/KKR Advisor, an investment advisor that manages business development companies (BDCs), which invest in the debt and equity of small- to mid-sized and struggling firms and are akin to venture capital funds, but available to retail investors. KKR Credit is a subsidiary of KKR, formerly Kohlberg Kravis Roberts, which is one of the largest and most harmful private equity firms on the planet. KKR is best known recently for causing Toys ‘R Us’ infamous demise. The rest of their investments range from acquisitions of health industry corporations like private ambulance company AMR and physician staffing firm Envision Health to fracking, drilling, and coal assets that are both underperforming and causing climate carnage. In one of the cruelest attempts to protect profit at the expense of humanity, KKR-owned firms have spent millions trying to oppose a ban on surprise medical billing. (They failed — the No Surprises Act takes effect January 1, 2022.)

KKR currently owns nearly 40 energy companies, 82 percent of which are in fossil fuels. This summer, it doubled down on fracking when it merged its Independence Energy with Contago Oil & Gas to create a “consolidation-focused oil and gas company.” KKR also owns significant equity in Canada’s Coastal GasLink pipeline project, which is operating on Wet’suwet’en First Nations people’s land against their will.

All of this should indicate skepticism toward the culture and investment philosophy Gerber is coming from, but what about the man himself? Gerber spent eight years in the Pennsylvania House of Representatives, where he claims to have led in the passage of the state’s first ever alternative fuels bill. It was really just a modification of an existing bill, and a modification which sought to include “advanced coal combustion with limited carbon emissions” in its definition of alternative energy sources. This has eerie similarities to the likely inclusion in Biden’s Build Back Better reconciliation bill of subsidies to coal plants willing to use their facilities for some semblance of carbon capture and storage. Such equivocations serve as a lifeline for coal plants to remain open and continue warming the planet. 

Gerber does have relevant experience for a job on the FRTIB. He did, after all, spend six years as a trustee and member of the Audit and Investment committees of Pennsylvania’s State Employees’ Retirement System (SERS). But at the expense of stating the obvious, not all experience is good. SERS is currently invested in the controversial methane gas pipeline company Energy Transfer Partners, which is ramming through the Mariner East 2 pipeline despite its construction causing hundreds of drilling spills, poisoned drinking water, and sinkholes in Pennsylvanians’ backyards. The fund also holds investments in Saudi Aramco, ExxonMobil, Chevron, Microsoft, Facebook, and JP Morgan, as well as in some of FS Investments’ top fossil fuel holdings, like Petroleos Mexicanos and Plains All American Pipeline.

Gerber’s familiarity lies with the ultra-wealthy, the far-removed, the profit-at-all-costs crowd. Nothing about his career inspires hope that he will be a champion for the nearly six million federal employees, retirees, veterans, and armed services members who deserve — and many of whom are begging for — a fossil-free pension plan that will both improve their returns on investment and allow them to sleep at night, knowing they are not funding climate destruction. 

While Gerber’s stated commitment to public service and environmental initiatives is historically weak, if not outright deceptive, this term with the FRTIB is nothing if not an opportunity for him to make good on decades of posturing and unfulfilled promises. Gerber may not be the nominee we want to see, but he has the capacity to defy expectation, and take bold moves to safeguard not only the retirement savings of six million people, but the planet upon which we all depend. Federal workers, the Employee Thrift Advisory Council, and the American public should hold him accountable for what he and his fellow FRTIB members do with the money of the people who make our government run.

Photo source: “Bringing Divest to Science Hall” by Overpass Light Brigade is licensed under CC BY-NC 2.0

2020 Election/TransitionClimateIndependent Agencies

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