In the wake of the tragedy last month, we learned that California teachers' pensions funds are invested in the maker of the Bushmaster AR-15 used to slaughter 26 first graders and teachers in Newtown, Connecticut. CalSTRS (the California State Teachers' Retirement System), which manages pensions of over 856,000 California educators, is a major investor in the private equity firm Cerberus, owner of the Freedom Group and subsidiary Bushmaster Firearms. (The Atlantic Wire calls the Bushmaster AR-15, which was also used to kill firefighters in Rochester, NY, "the weapon of choice for many a mass murderer.")
This investment runs counter to CalSTRS Statement of Investment Responsibility, "Non-economic factors will supplement profit factors in making investment decisions... The consideration of non-economic factors is for the purpose of ensuring that the Retirement System, either through its action or inaction, does not promote, condone or facilitate social injury." Likely due to pressure from CalSTRS, Cerberus announced its intention to sell the Freedom Group just days after the Newtown tragedy. (In my previous post, I argue that this "feel good" measure accomplishes nothing, as it doesn't prevent Bushmaster from continuing to sell as many AR-15s as it can make.)
An issue that hasn't been discussed is that donations given by Freedom Group and its subsidiaries to the NRA are ultimately being made with California teachers' pension funds, as they are among the ultimate stakeholders of Cerberus. (The California Public Employee Retirement System -- CalPERS -- and the New York State Common Retirement Fund -- NYSCRF -- are also large investors in Cerberus.) The Freedom Group, and subsidiaries Remington, Marlin Firearms, H&R 1871, and DPMS are all NRA corporate sponsors (as shown on a placard displayed at the NRA annual meeting in April 2012). In fact, the NRA issued a statement about the Freedom Group that "The owners and investors involved are strong supporters of the Second Amendment."
Last year, CalSTRS, which is the nation's second largest pension fund, adopted a policy calling for portfolio companies to annually report their expenditures on political contributions. Upon passing this policy, CalSTRS board members trumpeted the importance of disclosure of political donations. "Transparency in this area has been a longstanding concern for CalSTRS and remains a key part of our ongoing efforts to elicit more disclosure and accountability from the boards of our portfolio companies," said CalSTRS Investment Committee Chair Harry Keiley. State Treasurer Bill Lockyer declared, "This policy will help ensure corporations' political contributions serve the interests of companies and shareholders."
Yet Cerberus's apparent failure to report contributions to the NRA and other political/special interest organizations raises questions about whether CalSTRS policy applies to indirect investments (such as the Freedom Group, which is owned by Cerberus), what enforcement mechanism CalSTRS has for its transparency requirement, and what actions CalSTRS is now prepared to take.
CalSTRS CEO, in a response to me on his blog, wrote that the "Investment Committee of the Teachers' Retirement Board will engage in a robust discussion of our holdings and potential future actions" at its board meeting on January 9, 2013.
This meeting presents a great opportunity for Califonia's teachers to demand that CalSTRS board adhere not only to its Statement of Investment Responsibility, but also to its transparency policy. Especially given the egregiousness of Cerberus investing in manufacturers of assault weapons, and of these companies giving money that is ultimately California teachers' pension funds to the NRA, CalSTRS should take greater action. California teachers who are horrified to know that some of their pension funds may have been given to the NRA should ask CalSTRS to demand that Cerberus disclose all politically-related contributions and sponsorships by the firm and any indirect investment (such as the Freedom Group) in which the fund owns more than 25 percent of the company. Should Cerberus not agree to do so, CalSTRS should divest of its holdings in Cerberus and stop any future investments - even if Cerberus moves forward with selling the Freedom Group.
California teachers can write to CalSTRS CEO Jack Ehnes and board members (Dana Dillon, Harry Keiley, John Chiang, Sharon Hendricks, Michael Lawson, Bill Lockyer, Ana Matosantos, Paul Rosenstiel and Tom Torlakson) at the address below or reach CEO Jack Ehnes by commenting on his blog.
100 Waterfront Place
West Sacramento, CA 95605