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Franklin Templeton Could Feel Darfur's Heat

Brett Arends

While manager Will Danoff at Fidelity's FCNTXContrafund is dumping his stake in PetroChinaPTR, the Chinese company targeted by activists for its involvement with the Sudanese government, others are standing firm -- or going in the opposite direction.

One example: Franklin Templeton BEN, the fund company based in San Mateo, Calif. I looked though Franklin's public filings and found that between Dec. 31, 2006, and March 31 of this year, the company's investment funds nearly tripled their holdings in PetroChina to 156,699 American depositary receipts, or ADRs, from 61,194.

Most were held by Templeton's TEDMXDeveloping Markets Trust mutual fund (TEDMX). Company spokeswoman Lisa Gallegos pointed out that the stake only amounted to about $20 million.

Yet the figure doesn't include further shares in PetroChina that Franklin's offshore funds have bought in Hong Kong. Although exact figures aren't yet available, activists say those add up to a lot more.

Adam Sterling, director of the Sudan Divestment Task Force in Washington, D.C., highlights the offshore Templeton Asian Growth Fund. According to its latest prospectus, he says, the fund has 19% of its money in three big companies accused of complicity with Sudan's regime: China's PetroChina and SinopecSHI and India's Oil & Natural Gas Co.

The man managing both funds is Templeton's legendary emerging-markets guru, Mark Mobius. He has defended the company's stance. In an interview with USA Today a few months ago, for example, he argued that "engagement is better than departure. Once you depart, you cut yourself off from any dialogue that would be helpful."

But activists aren't satisfied. "We emailed Mr. Mobius asking him what he had done to engage these companies," said Sterling. "He hasn't replied." That was two months ago.

Mobius is hardly alone.

Take Fidelity in Boston. Yes, its managers dumped 91% of their stake in PetroChina during the first quarter. But Anne Crowley, the company's secretive communications boss, made a rare appearance in print last week to deny the sales were a company-wide decision.

Meanwhile, Fidelity's Bermuda-based sister company, Fidelity International, has kept at least half a billion dollars invested in PetroChina in its offshore Fidelity China Focus fund.

Mutual fund managers are making a big mistake if they think this issue is going to go away soon. The Darfur divestment issue has just gone mainstream.

It wasn't just Danoff's move at Fidelity. Nor, even, the heat that Warren Buffett took over the issue at the annual Berkshire Hathaway BRK shareholders' meeting. Buffett, the largest outside shareholder in PetroChina, is standing firm for now but it has drawn him some uncomfortable attention.

Last week, two presidential candidates -- Democrat John Edwards and Republican Rudy Giuliani -- got some unwelcome scrutiny when their financial records showed they had money in mutual funds that invest in suspect companies.

Edwards says he will dump the relevant funds. Rudy is reviewing the portfolio. It's worth noting that Sens. Barack Obama and Sam Brownback (one Democrat, one Republican) both said they had already dumped mutual funds with suspect investments.

All this comes just a few weeks after British engineering giant Rolls-Royce, which was one of the companies under fire for its involvement with the Sudanese regime, bowed to pressure and said it would pull out of the country.

The last time we saw anything like this was the campaign to divest funds from South Africa back in the 1980s.

And once that got rolling, it didn't turn back.

Maybe divestment works, maybe it doesn't. What's clear, though, is that people eagerly embrace it. At least it lets them feel they are doing something about these horrendous atrocities. (More than 200,000 people have been slaughtered in Darfur.)

Meanwhile, mutual fund managers, more than most other businesspeople, hate being on the wrong end of bad publicity.

The Darfur divestment campaign is well financed, well organized, and pretty shrewd.

Organizers are targeting just a handful of companies that they say are most closely involved with the Sudanese government. Now that Rolls-Royce is pulling out, those companies are oil services giant Schlumberger SLB, China's PetroChina and Sinopec, Malaysian oil and gas giant Petronas and India's ONGC.

Of these, oil-services giant Schlumberger is probably the most vulnerable. It is a Western company, with a massive $96 billion valuation, and its shares turn up in many mutual funds.

The activists aren't overplaying their hand. Allyn Brooks-LaSure, spokesman for the Save Darfur Coalition, told me on Friday that the campaign had followed the news from Fidelity by stepping up its pressure on other mutual fund companies -- behind closed doors, which is where they are mostly likely to get traction. "We have already begun to engage other companies privately," he says. A decision about whom to target with publicity next "may come within a matter of days."

Stay tuned.