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CalSTRS votes to oppose statewide ban on public funds’ investments in private prisons

CalSTRS' board voted Thursday to oppose a state bill that would require CalSTRS and CalPERS to divest investments in private prison companies by July 1, 2020.

The bill also would bar the $214.9 billion California State Teachers' Retirement System, West Sacramento, and the $348.7 billion California Public Employees Retirement System, Sacramento, from making additional or new investments or renewing existing investments in a private prison company.

Staff had recommended the board take a neutral position because CalSTRS' board already had voted in November to divest its investments in two private prison operating companies: CoreCivic and GEO Group. In July, CalSTRS Chief Investment Officer Christopher Ailman began a study to determine whether retaining CalSTRS' investments in CoreCivic and GEO Group would add risk because of human rights violations by private prisons that are now being used to house immigrants and children of immigrants who have been separated from their parents.

CalSTRS sold its investment in both companies by the end of last year, Mr. Ailman told the board.

Harvey L. Leiderman, partner at law firm Reed Smith, CalSTRS' fiduciary counsel, said that "the way it is written it (the bill) gives me a little less pause" because the bill requires divestment only if CalSTRS' board first finds that divesting private prison investments is consistent with the board's fiduciary duty.

Harry M. Keiley, board member and chairman of the investment committee, made the motion to oppose the bill.

"We are the elected trustees (of a board) that has a ... duty of loyalty to the fund. To let another entity make that decision for us is an abdication of our authority," Mr. Keiley said. "I don't think it's the author's intent ... I personally think it's (divesting from private prisons) a good idea."

Mr. Keiley stressed he is not opposed to divesting from private prisons and had voted in favor of doing so last year.