03/14/2013 10:00 am ET

Gun Investments By Hedge Funds Continued In Period That Includes Sandy Hook Shootings

WASHINGTON -- Financial firms and hedge funds invested roughly $79 million in gun manufacturers during the last quarter of 2012 -- a period that includes the Sandy Hook Elementary School massacre in Newtown, Conn.

The purchases are the focal point of a new report from the office of New York City's public advocate, Bill de Blasio, a mayoral candidate who has called for more than 20 hedge funds and 18 money managers in the gun industry to divest.

The report, released Thursday but provided in advance to The Huffington Post, calls out three hedge funds for new gun industry holdings in the last quarter of 2012. Those firms include Impala Asset Management, which purchased 893,938 new shares of firearms makers Smith & Wesson and Sturm, Ruger & Co., valued at $27.8 million; Owl Creek Asset Management, which purchased 1.6 million shares of Smith & Wesson, valued at $13.6 million; and Highside Capital Management, which purchased 251,807 shares of Sturm Ruger, valued at $11.4 million.

“For the rest of the country, Newtown changed everything," de Blasio said in a statement. "But for these financial firms, Newtown was just another opportunity to profit -- and our communities are paying the price. We won’t let business-as-usual prevail. We will force the issue through a national divestment campaign that changes the gun industry’s dangerous practices for good.”

The findings, with de Blasio's sharply worded rebuke as the spearpoint, are the latest in a wave of efforts by gun control groups, progressive advocates, pension funds and some investors to turn pocketbook pressures into political outcomes. The effort resembles previous campaigns such as those urging customers not to shop at stores like Target that supported anti-gay candidates and causes. Cerberus Capital Management, a private equity firm that owns Freedom Group, the gun manufacturer that makes the Bushmaster AR-15 rifle, put the company up for sale within days of the Newtown massacre and hasn't yet found a buyer.

Two firms cited by the public advocate's office said details of their investments don't make for such a clean hit.

The Newtown slaughter occurred late in the quarter, on Dec. 14, which means the hedge funds may have bought gun shares beforehand. Also, the firms could have divested gun holdings in the first quarter of 2013, but that won't be disclosed in regulatory filings for several months.

"Highside did not have any net long positions in any firearms manufacturers in the fourth quarter," said Joseph O'Brien, chief operating officer at Highside Capital Management.

Black Rock, which de Blasio said bought 1.6 million shares of Smith & Wesson for $13.7 million, said the purchase was tied to an investment strategy meant to mimic stock indices.

"We invest on behalf of our clients," explained Brian Beades, a Black Rock managing director. "Semi-automatic gun manufacturers are included in major stock indices provided by Dow Jones, MSCI, Russell, FTSE and S&P -- and therefore are held in our passive index funds. As a provider of passive index strategies, we seek to match a benchmark’s return, generally by holding each constituent in the benchmark."

Black Rock began offering clients investments that exclude gunmakers after the school shootings.

The Huffington Post contacted all nine firms named in de Blasio's report. Highside and Black Rock were the only ones that responded with a comment. Owl Creek Asset and The Bank of New York Mellon Corporation declined to comment. The other five failed to reply.

For all the challenges involved in encouraging divestments from gun manufacturing companies, the campaign led by gun control advocates has had some results.

One top hedge fund official told The Huffington Post that pension plan investors with his firm have "come forward and asked" that gunmaker holdings be stripped from their portfolios. Some of the biggest pension funds purged gun manufacturers from their holdings after Newtown.

Meanwhile, the public advocate's office noted that hedge funds including Gilder Gagnon Howe & Co., Tiger Global, and Renaissance Technologies all sold gunmaker holdings during the last quarter of 2012.

Still, gun manufacturers are hardly struggling. Sales of guns have skyrocketed in the wake of Sandy Hook. And share prices of the two big gunmakers that trade on the New York Stock Exchange, Smith & Wesson and Sturm Ruger, have recovered what they lost in the days after the shooting.



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