Pension funds could blaze way to peace and profits in Mideast

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While some financial analysts predict the Middle East is poised for an economic boom, one group of influential investors is just beginning to heed such forecasts: America's pension-fund managers.

With some $4 trillion in assets at their disposal, these custodians of American retirement capital have steered clear of the region, largely due to its ongoing political and military conflicts.

"You don't want to invest in a region that's in a constant state of war," explained Philip Schaefer, president of a San Francisco company that organizes conferences to educate pension fund managers on potential markets.

Schaefer, who also is regional chairman for the Jewish National Fund, said the ongoing peace process has made the Middle East a tempting target for such investments. But pension fund managers still need to learn more about the region's financial opportunities before jumping into the Mideast market, he added.

So Schaefer helped organize a conference last month called "Amman and Jerusalem — Ancient Lands, New Opportunities." The conference aimed at increasing public-pension fund investments in the Middle East, beginning with Jordan and Israel.

Schaefer's firm, Pensions 2000, helped bring in trustees and executives representing $400 billion in assets from 40 pension funds for public employees in the United States and Canada. The 10-day conference started in Jordan, then moved to Israel.

"When we took trustees to Israel and Jordan…we understood that while Israel and Jordan have combined populations of only 10 million, they're an economic gateway to a region with 300 million," Schaefer said.

The conference is part of a growing trend as investors in such markets as high-technology startups eye Middle Eastern economic growth resulting from the Israeli-Palestinian peace accords and the Israeli-Jordanian peace treaty.

Prosperity in the Middle East will not only produce profitable investments, Schaefer said, but should reinforce the prospects of peace as Arabs and Jews realize concrete benefits of the various treaties.

"We are part of the peace dividend," he said of efforts to spur pension fund investments in the Middle East. "We, in a sense, can be ambassadors to peace."

Not only can pension fund investments help boost peace but the money could fuel the Mideast economy as well. Pension funds for public employees account for about half of the $4 trillion in assets held by pension funds in the United States, according to Pensions 2000. Pension fund portfolios typically include stocks, bonds and real estate.

Schaefer estimates that up to 10 percent of the invested money goes into foreign markets. He does not know, however, to what degree that pension funds have penetrated the Mideast.

Recognizing the potential for an infusion of foreign investment, Israel and Jordan sent dozens of high-ranking government officials and private business leaders to woo participants at the recent conference. The group ate breakfast with Jordan's Crown Prince Al-Hassan Bin Talal and met with Israel's Prime Minister Yitzhak Rabin.

Conference sessions included "High Tech — Israeli Silicon Valley," "The Future of Israeli Capital Markets," and "The Regulatory Framework Necessary for Effective Capital Formation and the Direction of the U.S. Regulatory System."

But it will take more than one conference to persuade U.S. pension fund managers to invest in the Middle East.

Both Israel and Jordan must continue to reform their regulatory and tax systems, Schaefer said. The Amman Stock Exchange, for example, needs more shares to attract American investments, and Jordan needs to allow more private business to develop.

Though it's too early to know, Schaefer said the true sign of the conference's success will be measured a year from now when he knows how much money the 40 pension funds have invested in the region.

But Schaefer remains hopeful: Already he has started to consider a follow-up conference that might introduce American pension fund managers and executives to the Moroccans, Egyptians and Palestinians.