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In the Crosshairs: CalPERS Takes Aim at Gun Makers

3/24/2013

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Regardless of where you stand on the "gun control" debate this story should interest you on some level...

On February 19, 2013 the investment committee of the California Public Employees' Retirement System (CalPERS) pension fund voted to divest the fund of its investments in two companies (Sturm Ruger and Smith & Wesson) that manufacture certain weapons that are not available for public sale in the State of California. Interestingly, the CalPERS investment committee was not asked to divest the fund of its position in Wal-Mart, the fund's 14th largest holding and the largest distributor of these weapons in the United States.
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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...
“As trustees, we take divestment very seriously. As Californians, we also take gun violence very seriously. Eliminating these investments allows us to keep our duty to our members and, in some small part, do what we can to help stop the proliferation of weapons that can magnify and multiply horrific acts of mass violence."
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.

CalPERS Investment Committee Meeting: Feb. 19, 2013

The discussion about the divestiture of assault weapons related holdings begins at 00:21:00

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

Explore some more...

  • CalPERS Investment Policies (different ones for different issues)
  • CalPERS Pensions & Investments (meeting agendas, videos, etc.)
  • CalPERS Global Governance Plan (excellent framework)
  • Don't Let Your Invest Exp Become A Horror Show (previous post)
  • Investment Planning & Policy Development (slides)
  • A Written Plan Can Help Your Portfolio, WSJ
  • Making Your Investment Policy, Morningstar
  • Investment Policy Statement, Bogleheads
  • Developing A Strong Investment Policy Statement, Putnam
  • Socially Responsible Investing, Wikipedia
  • Moskowitz Prize for Socially Responsible Investing, UC Berkeley
  • Sustainable and Responsible Investing Facts, US SIF
  • Impact Investing, Stanford
  • Harnessing the Power of Impact Investing, Rockefeller Foundation
  • Impact Investing Gets a University Center, Forbes


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Dynamic Wealth Optimization™
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How do Sports Shape Our Business Ethics and Behaviors?

3/15/2013

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Having worked in the financial services industry since 1984, I have seen my fair share of unethical behavior. For most of this time, I have always believed that the over-developed need (desire) to achieve financial success and power were mostly to blame for this unsavory behavior.

I still believe that but, after watching the presentation below and doing some additional reading on the subject, I now believe that sports may play an important role in shaping our business ethics and resulting behavior.
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I'm here on a mission of mercy...
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.

Where do we draw the line?

Competition: what's fair today? Where we draw that line in sports, and in the general culture, shapes the games we play and the society in which we live. Our panel explores the murky ethical terrain of extreme competition as reflected in sports. Featuring Craig Robinson, Jeremy Schaap, Jim Brown and William E. Mayer.

Source: FORA.tv
Aspen Ideas Festival 2012
Aspen Institute, 26June2012


Are we taking college sports too seriously?

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

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Click on image to access the 3A website

Do we live in a "win-lose" society?

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
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Click in image to access 3rd Alternative website

On a related note...

Articles & Resources
  • How Big-Time Sports Ate College Life, NY Times
  • Does an 'A' in Ethics Have Any Value? WSJ
  • J.P. Morgan: It's Time for Some Real Change, Forbes
  • Don't Let Your Investor Experience Become a Horror Show
  • FINRA Fines Merrill Lynch $2.8 Million for Overcharging Customers; $32 Million in Remediation Paid to Affected Customers, FINRA
  • Arthur Andersen's Fall From Grace Is a Sad Tale of Greed and Miscues, WSJ
  • Morgan Stanley Code of Ethics and Business Conduct
  • Conversations That Build a Bridge of Trust, Value Alliance
  • Fair Play: The Winning Way, UNESCO

Markkula Center for Applied Ethics at Santa Clara University
  • Sports Ethics: Mapping the Issues
  • What Role Does Ethics Play in Sports?
  • Ethics in Professional Sports
  • Ethics in College Sports
  • Ethics in Youth Sports
"We all have the capacity to be quite bad under the right circumstances." ~ Dan Ariely
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Click in image to watch related video
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Infrastructure: Mega-Trend of the 21st Century

3/2/2013

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Coming to a planet near you: $57 trillion in infrastructure investments...

INFRASTRUCTURE (think bulldozers, pipelines, power grids, etc.) has always been an important investment theme but in the past ten years it has taken on a life of it's own.

In the late 00's investment firms, management consultancies and academic institutions began talking about infrastructure as a new "asset class," like equities, fixed income and precious metals. As we did with emerging markets, managed futures and alternative investments many touted the virtues of this relatively new asset class. Wall Street loves new asset classes!
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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.

2013 Report Card is now available online...

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Don't miss the state-level report cards from the ASCE. The hyperlink in this image will lead you to those.
My purpose in sharing this information, however, is not to promote (or downplay) the notion of investing in infrastructure but rather to create awareness about a mega-trend that has important implications not only for investors but for the many children and young adults who are wondering what they should be when they grow up. 

Suffice to say that the career prospects for civil engineers and other professions associated with global infrastructure planning, building, etc. will be pretty bright for the foreseeable future. In short, if you know any kids who like bulldozers, they're in luck!
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.
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Global Infrastructure: Evolving Asset Class Stanford University (full slide show below)
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...

Rethinking Infrastructure: Excellent Insights from McKinsey

The entire video (worth watching) can be found on the McKinsey website
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McKinsey Global Institute (click to access report)
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McKinsey Global Institute (click to access report)

Excellent Primer on Global Infrastructure as an Asset Class...


Articles & White Papers

Infrastructure Productivity (McKinsey)
File Size: 1785 kb
File Type: pdf
Download File

Infrastructure 2012 (Urban Land Institute & EY)
File Size: 6966 kb
File Type: pdf
Download File

Infrastructure and Asset Allocation (Ibbotson)
File Size: 253 kb
File Type: pdf
Download File

Infrastructure (CFA Institute)
File Size: 299 kb
File Type: pdf
Download File

Infrastructure (Bretton Woods Project)
File Size: 149 kb
File Type: pdf
Download File

Online Resources

  • Rethinking Infrastructure (McKinsey)
  • Infrastructure Report Card (American Society of Civil Engineers)
  • Books on Portfolio Management including Infrastructure Investing
  • Let's Rebuild America: Infrastructure Summit (US Chamber of Commerce)
  • Extraordinary Infrastructure Projects (Bentley)
  • Infrastructure 100 (KPMG)
  • Infrastructure Advisory (Ernst & Young)
  • Capital Projects Infrastructure (PwC)
  • Infrastructure & Transit (Urban Land Institute)
  • Global Infrastructure (World Bank)
  • Water Infrastructure (EPA)
  • Roadway Infrastructure (DOT)
  • Critical Infrastructure Protection (Dept Homeland Security)
  • Global Projects Center (Stanford)
  • Pension Fund Investment in Infrastructure (Harvard Law)
  • Infrastructure News (MIT)
  • Reliable & Secure Infrastructure (US Chamber of Commerce)
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100 of the most innovative and inspiring urban infrastructure projects compiiled by Ernst & Young

Live Twitter Feed

Tweets about "infrastructure"
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