CalSTRS Urged to Up Pressure on PE Manager’s Firearms Stake

Two years after the $190.8 billion pension promised to divest from gun manufacturers, it still has one troublesome holding.

The California State Teachers’ Retirement System (CalSTRS) is coming under pressure from members and the state’s treasurer to divest from a firearms company held by one of its private equity partners.

The $190.8 billion pension announced divestments from $3 million worth of shares in gun makers Smith & Wesson and Sturm, Ruger in 2013, following the Sandy Hook shootings in December 2012.

“We continue to push this issue and remain steadfast in our effort to eliminate our exposure.” —CalSTRSAt the same time, private equity partner Cerberus Asset Management made public its intention to sell a stake in Remington Outdoor, previously known as Freedom Group, which manufactures and sells firearms and ammunition. However, according to a statement from CalSTRS published yesterday, the investment has yet to be sold.

“As we continue to push them on this front, we have also worked to exercise patience and give them time to execute what is a complicated transaction,” the pension said. The statement emphasized that it “shares the frustration and concern of educators who want to see our fund completely divest from firearms.”

As well as pressure from California teachers, media reports have cited a letter from State Treasurer John Chiang—also a member of the CalSTRS board—calling for the pension to find out why Cerberus still holds the company. Protests against the investment are reportedly planned for today, coinciding with a meeting of the pension’s board.

CalSTRS is invested in three funds run by Cerberus, all of which are pooled vehicles, meaning the pension’s influence over the portfolio is limited.

“We cannot take unilateral action, in this case, to remove a specific company from an investment pool,” CalSTRS’ statement said. “Nor can we expose the fund by prematurely or imprudently selling about $375 million worth of holdings at a loss without thoroughly exhausting all other options first. While we cannot share the details, we want to make it clear that all potential options are being fully considered and have been for some time.”

Since the 2013 decision to exit firearms companies, the pension has inserted clauses in new contracts with private equity partners requiring firearms companies to be excluded from portfolios, and allowing CalSTRS an opt-out if any such investments are made.

“Rest assured that we continue to push this issue and remain steadfast in our effort to eliminate our exposure,” the pension said. “We will keep our membership updated on our progress and hope to have something to report soon.”

According to a breakdown of its private equity portfolio dated March 31 2014, CalSTRS committed a total of more than $750 million to three Cerberus funds in 2003, 2007, and 2008. Cerberus first invested in Freedom Group in 2006, according to the private equity manager’s website.

Related Content: In Whose Best Interest? & What Do Snoop Dogg and CalSTRS Have in Common?