Like so many citizens across the country, Harry Keiley felt powerless when he heard the shocking news of the school shootings at Newtown CT, last December. As a high school teacher, the devastating news hit close to home for Keiley even though he was 3000 miles away in Santa Monica, CA. Within days, however, Keiley discovered that he could help educators in his state take a powerful stand.
Keiley is chair of the investment committee of the California State Teachers Retirement System (CALSTRS) a $157 billion pension fund – the largest educator-only pension in the world. The teachers’ fund invests retirement benefits for more than 850,000 California public school teachers, workers and their families. It invests more than half of its assets in stocks but also has investments in bonds, private equity, real estate and other categories.
“President Obama issued a call for every American to do what they can do reduce gun violence in this country and protect our children,” Keiley recalls. “As a school teacher, a dad, a human being, it dawned on me that I and the CALSTRS board were not powerless. So we moved quickly.”
CALSTRS immediately began reviewing its private equity funds to determine if the fund had any investments in arms manufacturers. As it turned out, the fund owned a 2.4% stake in Freedom Groups via its partnership in Cerberus private equity funds. Freedom Group manufacturers the Bushmaster semiautomatic rifle that Adam Lanza used to kill 20 first graders and six adults at Sandy Hook Elementary back in December. In addition to Bushmaster, the fund had investments worth $2.9 million, in Sturm Ruger & Co. and Smith & Wesson. Overall, the total amount invested in gun manufacturers represented 1/100th of one percent of the fund’s $157 billion portfolio.
One day after CALSTRS began its review of its holdings, Cerberus announced its intent to sell Freedom Group.
At a January 9 pension board meeting, responding to a motion brought to the floor by state treasurer and board member Bill Lockyer, CALSTRS moved ahead and voted unanimously to dump the arms manufacturer from its portfolio.
CALSTRS determined that it investment in these companies violated its Environmental, Social and Governance policy which outlines 21 “risk factors,” particularly one relating to human health and safety.
“The sheer size and strength of this organization suggests a comprehensive responsibility exists,” said Keiley at the meeting. “This charge reaches to our influence as an active shareholder to try and change negative environmental, social, or governance practices where it’s responsible to do so.” Keiley adds that the move to divest is in accord with the board’s fiduciary duty because it protects the fund from the “the financial pressures we anticipate this sector of the industry will face.”
The move puts CALSTRS at the forefront of a movement to reevaluate these investments. According to a recent New York Times article, others may soon follow the fund’s lead. The California Public Employees Retirement System is expected to take up the issue in February, and employee pensions for Chicago and New York have taken steps similar to those by CALSTRS. The fund has a long history of factoring in political, social and environmental concerns when reviewing its investments. CALSTRS was one of early funds to divest from companies doing business with South Africa in the 1980s and it divested from the tobacco industry in 2009.
“I think we’ve taken appropriate action, given the unspeakable and tragic loss of life that occurred in Connecticut – at a school and involved fellow educators and the children we cherish,” Keiley said. “It was a tipping point for us.”