The Sudan ban

Despite good intentions, Illinois’ boycott on Sudan-related investments has gotten a state pension banned from at least one prominent private equity fund.

To protest the ongoing civil strife in Sudan’s Darfur region, a number of states in the US are restricting their pensions from investing in Sudan. One of the laws that has met with the most opposition from private equity GPs to date is that of the state of Illinois, which passed a law in late 2005 against its state pensions investing in companies that conduct business in Sudan.

Landry: Illinois law is poorly written

The Illinois law is not the first to take such a measure to try to push forth progress on what many see as an untenable situation in Sudan. However, the way the law is worded leaves it wide open to interpretation. Fund formation legal experts argue it is unclear how the vague wording of the law would be applied in the courtroom setting and how stringently. While other states and some university endowments – including those of Harvard, Stanford, Dartmouth, Yale, Brown, Amherst and the University of California system – have also passed some form of regulation on investing in Sudan-linked businesses, most are based more on a “best efforts” requirement, rather than an all-inclusive ban against investment activity that could be in any way linked to Sudan.

Kevin Landry, CEO of Boston-based private equity firm TA Associates, recently told PrivateEquityOnline that Illinois’ state pension fund was among the investors that the Boston-based private equity firm turned away for its recently closed $3.5 billion TA X fund. According to Landry, he was cautioned by legal counsel of the vague wording of Illinois’ new Sudan-divestment law.

“If you have any company selling a product, and any of their reps can sell that product in Sudan, you’d be in violation of the law,” Landry told PEO. “I think it’s a law with great intentions but is probably poorly written.”