CalSTRS to dump gun-makers from portfolio

CalSTRS' investment committee voted unanimously Wednesday afternoon to begin divestiture of the $154.3 billion pension fund's holdings in gun manufacturers, making it the first U.S. public pension plan to do so since last month's deadly school shooting in Connecticut.

CalSTRS' holdings in gun manufacturers are relatively small: $2.9 million total invested in two companies, Smith & Wesson and Sturm Ruger, through index funds.

CalSTRS Chief Investment Officer Christopher Ailman — citing the Dec. 14 school shooting at Sandy Hook Elementary School in Newtown, Conn. — said the manufacture of guns is causing a “public health risk,” a sentiment echoed by the nine-member board of the West Sacramento-based California State Teachers' Retirement System.

But while the holdings are small, its actions could lead other pension plans to take action.

California state Treasurer Bill Lockyer announced at Wednesday's meeting that he will be asking the $248.1 billion California Public Employees' Retirement System, Sacramento, to take similar action at its meeting Jan. 14.

As part of the divesture process, Mr. Ailman said CalSTRS staff will ask to meet with officials of the gun manufacturers and ask them to stop making guns that are illegal in California, such as assault weapons and certain handguns and rifles.

If they refuse, the board would have to take a second vote for the divestiture to take place, Mr. Ailman said.

CalSTRS officials immediately after the Connecticut shooting voiced great concerns about one of its private equity partners, Cerberus Capital Management, which owned Freedom Group, the makers of the Bushmaster 223 weapon was that used in the Connecticut shooting.

Mr. Ailman told the board that Cerberus officials told him on Tuesday that they had hired an investment bank and a law firm to help them negotiate the sale of Freedom Group.

He said CalSTRS will continue to monitor the sale of Freedom.

Mr. Ailman said the pension fund will be asking all of its private equity partners to certify in writing that they are adhering to the retirement system's 21 risk factors that require investments to adhere to environmental, social and governance factors.

Also, the pension fund is considering whether to adopt a risk-based asset allocation model, replacing its traditional asset class-based one.

The move, which was scheduled to be discussed at CalSTRS' investment committee meeting Wednesday afternoon, would end the current asset allocation model comprising global equities, fixed income, private equity, real estate and inflation-sensitive investments.

The new model would instead divide investments into growth risk, private growth, absolute return, growth diversify, inflation risk, interest rates and interest-rate uncertainty, according to a report by investment consultant Pension Consulting Alliance.

Key changes would include growth risk, which would consist of value equities but also would include credit and high-yield strategies, and private growth, which would cover growth equities as well as distressed debt, venture capital and buyouts.

No action on the model was scheduled for Wednesday's meeting. The new risk-based categories are expected to be voted on at a CalSTRS' investment committee meeting in April.

The new categories would serve only as a framework to determine actual asset weightings, Ricardo Duran, CalSTRS spokesman, said in an interview.

The actual allocations are scheduled to be voted on in July, Mr. Duran said.