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INVESTING/PORTFOLIO STRATEGIES

Cerberus to sell investment in manufacturer of gun used in Newtown school shootings

The announcement came a day after a CalSTRS spokesman said the pension fund was examining its investment in Cerberus

Conn police
Members of the Connecticut state police bow their heads during a memorial service for victims of the Sandy Hook Elementary School shooting.

Cerberus Capital Management on Tuesday announced it will start a formal process to sell its investment in gun manufacturer Freedom Group following the Dec. 14 mass shooting in a Newtown, Conn., school that killed 26 people, including 20 children.

Affiliates of private equity manager Cerberus Capital invested in Freedom Group in 2006. In a news release, Cerberus said it is not the company’s role to shape or influence gun policy, but there are actions it can take.

“We believe that this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so,” the release states.

The announcement came a day after a spokesman for the $154.8 billion California State Teachers’ Retirement System, West Sacramento, said the pension fund was examining its $500 million investment in Cerberus Capital. “Our investment branch is examining the Cerberus investment to determine how best to move forward given the tragic events,” spokesman Ricardo Duran said in a statement.

According to a CalSTRS news release posted on Tuesday, the pension fund owns 2.4% of Freedom Group through its investments in Cerberus Capital Series 3 and 4, to which it committed a total of $600 million.

“CalSTRS has established a thorough vetting process for potential investments that seeks to test not only their financial potential, but their social, human and environmental impacts as well. In fact, current policies require that the risks associated with products that pose significant threats to human well-being be taken into account before an investment is made by CalSTRS investment managers,” according to the release. “They are outlined in CalSTRS 21 Risk Factors, which we adopted in 2008 after our investments in Cerberus.”

On Monday, California Treasurer Bill Lockyer said he’ll propose that CalSTRS and the $240.7 billion California Public Employees’ Retirement System, Sacramento, sell off investments in firearm manufacturers that make guns prohibited under state law.

Mr. Lockyer, a board member of both CalSTRS and CalPERS, asked that both pension funds review their holdings to determine how much they’ve invested in gun-makers. He said he would then propose to divest those stakes. A CalPERS spokesman didn’t immediately respond to a request for comment on its holdings.

In 2009, Cerberus filed to take Freedom Group public, but withdrew the initial public offering in 2010.

Cerberus built Freedom Group into the nation’s biggest manufacturer of guns and ammunition, with nine plants and 3,100 employees. The company makes the Bushmaster semiautomatic rifle, the weapon authorities said Adam Lanza used on his rampage at Sandy Hook Elementary School in Newtown before taking his own life.

The father of Cerberus founder and CEO Stephen Feinberg lives in Newtown.

Bloomberg contributed to this article.

See CalSTRS' Statement of Investment Responsibility

See CalPERS' report: Towards Sustainable Investment