Guns, Pensions and Private Equity
Private Equity (PE) firms, which take companies private or invest in, and grow companies (for the most part), have been in the spotlight a lot over the last few months.
What doesn’t generally come out much in the news though is that these firms are typically not working with their own money. Instead, various entities – large and small – invest their money in funds (or pools of money) that the PE firms raise, from time to time. This money is then invested in various companies, and everyone hopes for sizable returns and gains.
As it turns out, the California State Teachers Retirement System (CalSTRS), is a major investor ($500+m) in a $7.5B fund run by Private Equity firm Cerberus Capital. Cerberus used that fund, or a part of it, to acquire and consolidate a number of gun makers into a platform called the “Freedom Group”:
The company in question is Freedom Group, a privately-held firearms conglomerate formed by private equity and hedge fund group Cerberus Capital Management. Cerberus created the platform in April 2006 via the acquisition of Bushmaster, after which it added another 10 makers of firearms, ammunition and accessories (including Remington, Marlin Arms and Barnes Bullets).
Following the Newtown massacre, where a Bushmaster AR-15 rifle was the primary murder weapon, CalSTRS is “examining“ its participation with Cerberus:
“At this point our investment branch is examining the Cerberus investment to determine how best to move forward given the tragic events of last Friday in Newtown, Connecticut,” Ricardo Duran, a spokesman for the public pension fund manager, said in an email.
Pension funds and other large institutional investors across the world control trillions of dollars in assets (as much as $20 Trillion, according to The Economist, in 2008). Consequently, they have enormous “supplier power”, as suppliers of money to hedge funds, PE firms, etc.
I wonder if US pension funds such as CalSTRS and their brethren are finally ready today to leverage some of that power for the greater societal good (mass killings by deranged psychopaths armed with super powerful guns, in this case), beyond just Alphas and Betas.
Update at 11.30am:
What do you know?
Cerberus is putting up The Freedom Group (great name, no?) for sale. I am sure CalSTRS and others did not want their names besmirched by associating themselves with the massacre. And Cerberus likely doesn’t want to turn off investors both today and in the future (when it goes to them to raise more money for funds in the future).
Makes sense from a business standpoint. But businesses don’t exist in a vacuum. They are part of society and are owned by people who are part of society. Those people have kids that go to elementary schools just like Newtown.
Why does it require a massacre of innocents for them to wake up?
More observations via Dan Primack, on Dec 19, 2012:
The Wall Street Journal reports that the California State Teachers Retirement System is reviewing all its gun-related investments following the Sandy Hook Elementary School mass murders. In a statement, the $154 billion pension fund said it would “divest, at a minimum, from any firm that makes guns that are prohibited from being sold in California.
“These weapons have no place in our communities. Our families and children are safer without them.”
Sometimes business and market makers have more of a backbone than federal politicians. This isn’t news. But could big moves by institutional investors do more to sway the debate on gun control than, say, the so-called convictions of our cynical elected officials? (Says the, apparently, cynical person writing this column…)