Stay informed with the White House Watch newsletter, available at no cost.

The pension fund of New York City is contemplating a return to investing in Israeli government bonds, despite the opposition from the city’s new mayor, Zohran Mamdani, who advocates for divestment from Israel due to its actions in the Gaza conflict.

Mark Levine, the Chief Financial Officer of the city, emphasized the strong performance of these bonds. “The Israel bonds have shown exceptional performance and maintain an investment-grade rating,” Levine stated to the Financial Times. “My duty is to make investment decisions grounded in their proven track record.”

Should the pension fund decide to reinvest, it would undoubtedly clash with Mayor Mamdani’s stance. Upon assuming office on January 1, one of Mamdani’s initial moves was to overturn an executive order from former mayor Eric Adams, which prohibited city agencies from boycotting or withdrawing investments from Israel.

Mamdani has been vocal about his disapproval of Israel’s treatment of Palestinians. In a CBS interview prior to his inauguration, he asserted that New York should not support investments that contravene international law.

Levine, who is of Jewish heritage, acknowledges his own criticisms of the Israeli government and has actively protested against its policies. He insists, however, that investment decisions should be distinctly separate from political influences.

“I have deep criticisms of the policies of the US government,” he said. “But we continue to own US Treasury debt.”

The debate over investment in Israel bonds highlights the tension between maximising returns of public funds and responding to social and ethical pressures.

“It illustrates how squishy all this is,” said Zachary Christensen, a researcher at the Reason Foundation think-tank. “It’s very easy to divest and to back it up with fiscal or fiduciary reasoning — and it’s easy not to as well.”

Mamdani did not respond to requests for comment.

Levine’s proposal to resume purchases of Israel bonds could reverse a 2023 decision by his predecessor, Brad Lander, to halt new investment in Israel bonds as existing holdings matured. Lander said at the time that the move was consistent with the city’s policy of avoiding foreign sovereign debt.

During his election campaign last year, Levine pledged to reinvest New York City pension funds in Israel bonds, which he said had “paid solid dividends for 75 years”.

Ten-year, dollar-denominated Israel bonds — which require a minimum investment of $25,000 — currently offer yields of 5.2 per cent, compared with 4.2 per cent for US Treasuries of a similar maturity.

The yield gap has prompted some US public funds to jump in. Palm Beach County in Florida has become the world’s largest holder of Israel bonds, with total holdings of $1bn, or one-sixth of its assets, after comptroller Mike Caruso authorised a new $350mn purchase this month.

“Israel bonds give us the highest rate of return that we can earn on all of the other investments that we are authorised by the state to invest our tax dollars in,” said County Commissioner Gregg Weiss at a press conference last week.

Levine said he was prepared for further opposition as he weighs whether to resume purchases of Israel bonds. Acknowledging many people, including the mayor, have “sharply different opinions”, he said he “cares a lot” about their views and would “continue to dialogue” with them.

He added that any investment in Israel would make up only a “tiny” share of the $311bn pension fund’s overall portfolio and that a decision would be made after discussions with trustees.

Some analysts said Levine had focused heavily on the strengths of Israel bonds but should pay closer attention to the risks that accompany their higher returns.

“There is no free lunch,” said Christensen. “Any discussion of the issue that does not grapple with both risk and potential returns is problematic.”