Fidelity says it did not divest for Darfur
Firm says decisions based on returns, not pressure by activists
Fidelity Investments, which has long sought to distance its investment choices from political questions, said yesterday its sharp reductions of holdings in oil companies targeted by human-rights activists over their ties to Sudan's rulers were not a coordinated corporate response to the criticism.
Rather, said Anne Crowley, a spokeswoman for the Boston mutual-fund giant, the sales were decided by the managers of individual Fidelity funds. Each "works to take into account factors that could have an appreciable impact on the potential return of the stock in the short term or the long term," Crowley said. "Fidelity doesn't tell fund managers how or when to buy or sell any given stock," she said.
Fidelity filed documents with the Securities and Exchange Commission Tuesday that showed its ownership of PetroChina Co. shares traded on the New York Stock Exchange declining from about 4.5 million shares earlier this year to 420,916 as of the end of March, a decrease of more than 90 per cent.
PetroChina is part of a Chinese energy corporation accused by human-rights activists of paying royalties that fund violent campaigns in Sudan's Darfur region. Filings also show Fidelity sold many shares in another Chinese oil firm, Sinopec, that has drawn similar criticism.
Activists praised the sell-off in shares. David Rubenstein, director of a human-rights coalition in Washington, said the sales show Fidelity "appears to be making a genuine effort to financially separate from PetroChina."
But he cautioned it is too soon to tell whether Fidelity fully divested its shares or instead shifted its ownership in ways that its public filings don't yet reflect. For example, Fidelity also owns shares in PetroChina that are traded on the Hong Kong stock exchange. As of October, the last time it reported those holdings, Fidelity was the eighth-largest holder of PetroChina shares on the Hong Kong exchange, with 206,000. Rubinstein called on Fidelity to provide more details of its holdings.
To fund industry observers, Fidelity's sell-off underscores the growing tension money managers face over their holdings.
For the past two decades, human-rights groups have successfully pressured university endowments and public-pension funds to divest their holdings in politically sensitive regions, such as South Africa during apartheid. More recently, activists have also begun to pressure mutual funds over the same kinds of investments, as well as on other issues, such as global warming and gay marriage, reasoning the funds should respond to the wishes of investors who put billions of dollars a year under their control.
While 54.9 million American households owned mutual funds last year, these funds face fewer requirements to explain their decisions compared with publicly traded companies.
That's especially true in the case of Fidelity, controlled by its founding Johnson family whose leaders rarely grant interviews.
John Bonnanzio, who edits a newsletter for Fidelity fund shareholders, said pressure over the PetroChina holdings amounted to a special case Fidelity had to address. "It would be very unusual for Fidelity to fold on this kind of an issue, but there's really no precedent for this situation in Sudan," Bonnanzio said in an interview. He said the activists' campaign likely contributed to the managers' decisions to sell the shares. "It would certainly be an extraordinary coincidence for them to have sold these shares otherwise," he said.
Human-rights groups say the companies doing business in Sudan's Darfur region help prop up the Arab-dominated regime in Sudan's capital of Khartoum. The regime has been widely accused of sponsoring brutal militia campaigns in the country's western Darfur region, which President Bush has called a "genocide." Observers estimate more than 200,000 people have died in fighting in the region.
Shares in PetroChina and Sinopec have risen dramatically since 2004 on China's growing demand for energy resources.
Securities filings show other big investors in PetroChina include funds of Franklin Templeton Investments and Warren Buffett's Berkshire Hathaway Inc., and show no recent sales of PetroChina holdings as big as Fidelity's.
Another Boston company, Wellington Management, has been a big holder in Sinopec though recent filings show it has cut its stake significantly. (A Wellington spokeswoman said the company wouldn't discuss its reasoning.)
Fidelity's actions have drawn particular attention from activists, however, who say its size and widespread advertising make it an obvious target.
Fidelity responds that its holdings are permitted under US regulations and that, as Crowley put it, "Our funds have a fiduciary responsibility to act in the financial interests of their investors, in keeping with the investment policies for each fund. This is not Fidelity investing its own money, this is Fidelity investing the money of millions of people."
The situation in Darfur, she said, "is a matter to be properly resolved by the governments of the world and the United Nations. And we truly hope they will do what is right."
Ross Kerber can be reached at kerber@globe.com. 