Battleship Missouri

If actions indeed speak louder than words in the Show-Me State, then Sarah Steelman, Missouri State Treasurer, is showing ‘em. It was the former financial advisor’s unconventional idea for the Missouri Investment Trust — managing long-term monies for cultural groups — to implement a “terror-free” investment fund. That’s why MIT became the first public agency in America to create a stock fund that screens out companies doing business with U.S.-sanctioned countries sponsoring terrorists.

“My objective was to have a portfolio that’s terror-free, clean,” says the friendly but determined Treasurer, 49. “The goal was to cut off money going to terrorists. I wanted to show people: ‘Hey, you’re in power to take action and do something about the war on terrorism.’”

In the 1990s, Steelman was working as an A.G. Edwards retail broker in the town of Rolla, south of Jefferson City, Missouri’s capital. But her long-time craving was to enter the political arena. That dream became reality when in 1998, the F.A. tossed her hat into the ring — a state senatorial race — and won. Four years later she was re-elected. By January 2005, she’d been sworn in as Missouri State Treasurer, the first Republican woman elected to the office.

Steelman’s message to financial advisors and institutional managers? “Take a look at what you’re investing in and empower Americans. If people start asking for funds that are free of the companies that are doing business with terrorist-sponsoring governments,” she says, “Wall Street will respond. That’s the beauty of the American markets: They will provide the product. Educate yourself and your clients. Demand the products.”

After soliciting proposals, the MIT governing board last July chose the International Alpha Select Fund, an enhanced index fund that excludes investments in companies known to be operating directly with Iran, Syria, North Korea, Cuba and Sudan. It is actively managed by State Street Global Advisors with research supplied by Conflict Securities Advisory Group. [See our Q&A with CSAG's Adam Pener on page 41.]

As of December 31, 2006, $7.5 million of MIT’s total $30.5 million was invested in Alpha Select.

At first, Steelman’s pitch for a terror-free fund met with tough opposition from the public pension fund board. “There was quite a battle. The board and investment staff didn’t want to change the governance policy regarding how we look at terrorism. But I pushed it and I pushed it until it got done,” she says.

How’s the fund doing? “Great,” Steelman enthuses. In its first five months, the portfolio was up an annualized 17 percent, outperforming by 6 percent its benchmark EAFE Index.

As State Treasurer, Steelman is responsible for the management of more than $19 billion in Missouri’s annual revenue and oversees the investment of $3 billion-plus in the state’s portfolio. Newly elected, she immediately deleted foreign-owned investment companies from Missouri’s list of preferred broker-dealers and won passage of an overhaul of state banking laws.

She also “knocked UBS off” the list because, she says, the wirehouse was engaged in business with companies in Iran. “We shouldn’t be helping [Iran] in any way. Those profits go to fund terrorists.” She is now satisfied that the firm is “out of Iran, so we’re putting them back on our list. We’re in correspondence with them right now to do that.”

Soon Missouri will be adding the Roosevelt Multi-Cap Terror-Free Mutual Fund as an option in its 529 College Savings Plan. “I want to make sure Americans have a choice and [know] that their investment dollars aren’t going to subsidize terrorism,” says Steelman.

Steelman’s brokerage background has come in handy. “It’s certainly made it easier to understand the State Treasurer’s Office, and it helps me in making investments — though I’m limited by the Constitution to very conservative types of financial instruments. The terror-free fund, though, was outside the General Revenue Fund,” she says. “So we were able to invest in stocks.”