When a gunman slaughtered 26 children and adults at a Connecticut elementary school, California’s teacher pension fund responded with a forceful denunciation of gun violence and said it was rethinking its investment in the company that manufactured the firearm used in the shooting.Two years later, the investment remains intact, and some of CalSTRS’ chief constituents – schoolteachers – are losing patience.
The California Federation of Teachers plans a protest outside a CalSTRS board meeting in West Sacramento on Thursday, demanding the pension fund follow through on its pledge to unload its investment in Cerberus Capital Management, the private equity firm that owns gun manufacturer Freedom Group. A Bushmaster rifle manufactured by Freedom was tied to the shootings at Sandy Hook Elementary School in December 2012.
A simultaneous protest is planned at Cerberus’ regional office in Los Angeles.
The protests, which are being labeled “teach-ins,” are tied to CalSTRS’ investment in Cerberus, valued at $375 million. CalSTRS was one of the most outspoken investors following the Sandy Hook massacre, saying it was reviewing its Cerberus investment and demanding that the firm sell off Freedom Group.
Cerberus has tried, unsuccessfully, to sell Freedom. And CalSTRS still has its investment in Cerberus.
A CalSTRS spokesman said Wednesday that the pension fund can’t force Cerberus to unload the investment, nor can CalSTRS simply walk away from its Cerberus holdings.
“We still are invested in Cerberus, to our chagrin,” said spokesman Mike Sicilia of the California State Teachers’ Retirement System. “We share the frustration of those who ask us to divest.”
Sicilia said “contractual obligations” prevent CalSTRS from selling its investment with Cerberus. He wouldn’t go into details, but added, “We can’t walk; we’re in it.” Private equity firms such as Cerberus invest in companies that aren’t owned by public stockholders.
He said CalSTRS also must respect its obligation to generate as much profit as possible for its current and future retirees. The pension fund shouldn’t unload its Cerberus investment at a loss “without thoroughly exhausting all other options first.”
CalSTRS’ dilemma is typical for institutional investors that have to make money while remaining socially responsible, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
Those two goals “will sometimes collide,” Elson said. “Sometimes, life is complicated.”
The teachers federation, however, said unwinding the CalSTRS investment shouldn’t be that difficult.
“They’ve had two years to figure these things out, and it shouldn’t take another two years,” said Fred Glass, the teachers federation’s communications director.
The federation plans to screen a movie called “Gun-Free Retirement”outside the CalSTRS headquarters in West Sacramento. Representatives of the federation will then address the pension fund’s board meeting during the public comment session. The film also will be screened outside Cerberus’ Los Angeles office.
After the Connecticut shooting, the CalSTRS board banned investments in companies that make firearms that are illegal in California. That policy would extend to Freedom Group.
CalSTRS was able to quickly sell its stock in two public companies affected by the new policy, Smith & Wesson and Sturm, Ruger & Co. Those investments totaled $3 million – a pittance in a portfolio that stood at $190.8 billion as of Feb. 28, the latest data available.
Unloading its private investment in Cerberus has proved more difficult.
“They’re stuck,” Elson said.
State Treasurer John Chiang, himself a CalSTRS board member, sent a letter Tuesday to Sharon Hendricks, chair of the pension fund’s investment committee, asking the fund to “take all the steps necessary to ensure that it fully divests from the Freedom Group.” He invited Cerberus executives to attend the committee’s next meeting, set for Friday, to explain why it has been unable to sell Freedom Group.
Officials with Cerberus declined comment Wednesday.
Public pension funds have wrestled for years with issues surrounding socially responsible investing. CalSTRS and the state’s other giant public pension fund, CalPERS, unloaded their tobacco stocks in 2000, and then watched as tobacco investments rose in value. The Legislature several years ago directed the two pension funds to dump investments tied to regimes such as Iran and Sudan. Earlier this year, Senate President Pro Tem Kevin de León proposed legislation requiring CalPERS and CalSTRS to unloadcoal-related investments.
Elson said institutions such as CalSTRS should insist on opt-out provisions in case they need to pull out of private-equity investments because of social or political issues.
CalSTRS inserted clauses in its private equity deals made after Sandy Hook that allow the pension fund to withdraw its money if its partner invests in firearms companies that are considered off limits. But the pension fund has been unable to unload its Cerberus investment.
Cerberus has spent more than two years trying to sell Freedom. At one point, it started putting together a mechanism to let investors such as CalSTRS sever their ties with Freedom without having to sell their investments in other Cerberus-owned companies, according to Fortune. But that plan fizzled, the magazine reported.