Unconventional Wisdom: A Talking Blog by Steve Saenz

In the Crosshairs: CalPERS Takes Aim at Gun Makers

3/24/2013

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.

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