Northern Trust starts 7 index funds over Sudan law

Dec 6, 2005 (BOSTON) — Northern Trust Corp., a large U.S. money manager, on Tuesday said it is launching seven index funds to help state pensions in Illinois to comply with a new law banning public portfolios from investing in Sudan.

The state law forces 13 public pension funds in the state to divest their holdings in companies that do business in Sudan, where the western region of Darfur is torn by what the Bush administration has called genocide.

To meet the law’s 2007 deadline, the Chicago-based asset manager will have to avoid certain stocks in public pension funds such as oil giants Royal Dutch/Shell and Total because they operate in the African nation.

The two companies make up about 4 percent of the MSCI EAFE index, a widely used benchmark that asset management companies use to track international stock portfolios.

“The investment challenge is to fill the void and pick other securities in the index that have similar characteristics and overweight them,” Steven Schoenfeld, chief investment strategist at Northern Trust Global Investments, a unit of the parent corporation, said in an interview.

The seven new funds are pegged to indexes such as the Standard & Poor’s 500 <.SPX> and the broad Dow Jones Wilshire 5000 Index. <.DWC>

While the company is given little choice in the matter, it viewed this “at worst as a challenge,” Schoenfeld said. Big names like oil services company Schulmberger and Swedish telecom giant Ericson would also likely be excluded from the funds, he said.

Some clients already impose filters to weed out tobacco, alcohol or defense companies. Northern Trust has about $4.5 billion in assets in socially-screened portfolios, Schoenfeld said.

Schoenfeld would not say how many of the 13 affected pension funds are clients of Northern Trust, although he noted it was “a lot of them” worth “multibillion dollars.”

The Darfur conflict broke out in early 2003 after rebels took up arms against an Arab-dominated government, complaining of discrimination. It persists in spite of a January peace agreement that ended a 21-year-old civil war in which an estimated two million died from fighting or famine.

“If this law is going to be effective it will have to touch all layers (of companies doing business in Sudan),” said Jacqueline Collins, an Illinois state senator who sponsored the bill. “It has to send a clear message that the international community is monitoring the situation.”

While Collins did not issue a list of banned companies, she said in an interview that Petrochina <0857.HK> and German company Siemens A.G. would likely be affected.

Similar laws have been passed in New Jersey and Oregon and others have been proposed in Indiana, Connecticut, Missouri, New York, Ohio and California.

Collins said she modeled her bill on a similar initiative in the 1980s that prohibited investment, bank loans and some trade with apartheid South Africa.

(Reuters)