For those unfamiliar with this organization, CalPERS is the nation's largest public pension fund with assets totaling $248.8 billion as of December 31, 2012. As with most "institutional" investors, the CalPERS investment committee wields significant power because its portfolio management decisions (which are made within the framework of the fund's investment policies) can have a material impact on markets and/or specific companies (and other entities) in which it invests.

As it turns out, the total exposure to the CalPERS portfolio (roughly $5 million) represented by the shares of these two weapons makers was deemed to be “de minimis." In other words, the divestiture of these two stocks would not have a material impact on the portfolio. Instead, the investment committee voted to divest the fund of these two stocks because they wanted to send a message to their members, many of whom are teachers and other education professionals. They also felt that retaining these (controversial) holdings would cause more headaches for the committee in the long run.  Rob Feckner, CalPERS Board of Administration President summed it up this way...

The video below contains the portion of the Feb. 19 meeting in which the investment committee considered and voted to approve this motion. The discussion, which is quite interesting (especially for investment professionals) begins at 00:21:00 and ends at around 00:50:00. You will hear the investment committee members talk about a wide range of issues including fiduciary duty, investment policies, divestment policy, efficient market hypothesis, plan governance, public policy, socially responsible investing and more.

Background

Following the tragic events that took place on December 14, 2012 at Sandy Hook Elementary School in Newtown CT, CalPERS Board Member, Bill Lockyer, California  State Treasurer, requested CalPERS conduct a review of its exposure to firearms  manufacturing within the investment portfolio. The purpose was to identify exposure to firearms manufacturers that produce and distribute to the general public, assault weapons illegal for public sale under California law (Attachments 2, 3, and 4). 

On February 17, 2009, the Investment Committee adopted a Statement of Investment  Policy Regarding Divestment (Attachment 1). This policy provides a framework for staff to analyze investments targeted for divestment. The policy also provides criteria by which divestment shall be undertaken. In general, CalPERS policy prefers  constructive engagement to divesting as a means of affecting the conduct of entities in which it invests. However, the policy provides specific circumstances under which divestment can be undertaken. 

~ CalPERS Investment Committee Memo on Assault Weapon Manufacturers Portfolio Review

In his epic book, the 7 Habit of Highly Effective People, the late Stephen Covey said that we live in a WIN-LOSE society. Many children are raised to think that winning is everything. They also grow up idolizing sports figures as if they were mythical Gods. We won't solve the problem anytime soon but maybe some additional awareness will increase our sensitivity to the issue. I would be very interested to hear your thoughts on the subject.

Last month, Ohio State hired Urban Meyer to coach football for $4 million a year plus bonuses (playing in the B.C.S. National Championship game nets him an extra $250,000; a graduation rate over 80 percent would be worth $150,000). He has personal use of a private jet.

Dr. Aubrecht, a physics professor at Ohio State, says he doesn't have enough money in his own budget to cover attendance at conferences. “From a business perspective,” he can see why Coach Meyer was hired, but he calls the package just more evidence that the “tail is wagging the dog.”

~ Excerpt from How Big-Time Sports Ate College Life by Laura Pappano -- New York Times, 01.20.2012

Most of us learn to base our self-worth on comparisons and competition. We think about succeeding in terms of someone else failing--that is, if I win, you lose; or if you win, I lose. Life becomes a zero-sum game. There is only so much pie to go around, and if you get a big piece, there is less for me; it's not fair, and I'm going to make sure you don't get anymore. We all play the game, but how much fun is it really? 

Win-win sees life as a cooperative arena, not a competitive one. Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. Win-win means agreements or solutions are mutually beneficial and satisfying. We both get to eat the pie, and it tastes pretty darn good! 

~ Stephen R. Covey, 7 Habits of Highly Effective People

Papers were written about the diversification benefits of infrastructure investments as they relate to portfolio management. Management consultancies such as Ernst & Young, McKinsey, KPMG and PwC established infrastructure practices. At the academic level, analysts debated whether infrastructure was, in fact, a true asset class. The consensus, by the way, was that infrastructure is indeed an asset class.

Lest you think infrastructure is "old news," just two weeks ago, the US Chamber of Commerce held it's First Annual Transportation Infrastructure Summit, Let's Rebuild America. Last week, McKinsey released an excellent piece called, Rethinking Infrastructure, which was the inspiration for this slog post.

Regardless of how you slice it, a lot of bridges and roads need to be fixed and/or built around the world in the next several decades! These state report cards on the condition of our infrastructure prepared by the American Society of Civil Engineers bring it down to a local level that everyone can understand. In terms of it's impact and longevity, infrastructure has the potential to be as significant as the demographic (baby boom) mega-trend. That's a powerful locomotive that many have been riding since the early-1980's and one that is still going strong.

In Rethinking Infrastructure, McKinsey's Infrastructure Practice points out that the world will have to spend $57 trillion on infrastructure by the year 2030 just to keep up with projected global growth. The video below provides an executive summary but the entire video is a must-watch. I have also included some PDFs and links to related content at the bottom of this page.

In summary, the global infrastructure story has significant and long-term implications for corporate executives, investors, financial professionals, parents, educators, government leaders, futurists and more. I say, CARPE FUTURO! There is no time like the present to seize the future -- especially if you are in college or early in your career...

The entire video (worth watching) can be found on the McKinsey website