Deutch: is pension fund hiking gas prices?

Published June 30th, 2008

By John Johnston
Managing Editor

Is speculation by Florida’s pension fund mangers in oil stocks and related investments creating higher gas prices?

That’s the question and concern of State Senator Ted Deutch (D-Boca Raton) – so much so that he has asked the State Board of Administration (SBA) to review its holdings and justify any direct or indirect investments of Florida tax dollars in the commodities markets.

“Having learned from the Enron debacle, Florida has an obligation to ensure that it leads the nation in avoiding risky investments that may play a role in manipulating our own oil and gas prices,” said Deutch, adding:

“Even as Congress deliberates appropriate federal action, the State of Florida can and should be a leader among public pension funds in helping to close any regulatory gaps that are bad for their investors and worse for their citizens.  We should make sure that Florida’s energy investments are hedging the state’s exposure rather than exposing Florida’s citizens to additional and unnecessary risk.”

According to Deutch, the request stems from mounting concern gathered from Congressional testimony probing rising energy prices. Just this week, a Congressional Subcommittee on Oversight and Investigations conducted a hearing on energy speculation and price manipulation of the oil markets. 

Chairman John Dingell quoted studies suggesting that 25 to 50 percent of the increase in the price of oil has been caused by speculation and the flow of investment money into these markets.  Curbing current speculation in and possible manipulation of oil markets appears to be a Congressional priority.  In fact, Chairman Dingell suggested that Congress might even act to prevent pension funds from using the commodity markets as investment vehicles.

Both state and federal concern bout oil speculation is not a new concern, Deutch pointed out.  Since 2006, congressional research has suggested a direct correlation between rising oil and natural gas prices and speculation in unregulated commodities markets by institutional investors, including pensions. 

Deutch asked the SBA to “review its holdings and identify and justify any direct or indirect investments of Florida tax dollars in the commodities markets, specifically including oil.” The examination should “include at a minimum,” Deutch said,  “investments in energy companies, as well as holdings in hedge funds, private equity, and exchange traded funds that invest in the commodities markets.”

He also requested that the SBA, in light of its current project to examine “commodities investments as a standalone investment initiative should be scrutinized even more closely in light of the direct link between commodities speculation and rising gas prices.  You must weigh the potential impact not only on returns but on the risk of contributing to even higher gas prices for our citizens.” 
 
Deutch warned that rising oil prices are not only impacting Florida’s residents, but also the tourism industry, service sector and agriculture. And he urged the SBA to take the national lead in pursuing “all steps necessary to protect our citizens from inadvertently contributing to these rising prices through risky speculation in the commodities market.”