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The nation's largest teacher pension fund took the first step Wednesday toward divesting from companies that make guns and high-capacity ammunition magazines that are illegal in California.
State Treasurer Bill Lockyer made a motion to begin the divestment process after pension fund officials determined that the fund invests in the owner of a company that manufactured one of the weapons used in the Connecticut school shooting. The California State Teachers' Retirement System's investment committee unanimously approved the motion.
"CalSTRS' action targets ammunition clips that turn ordinary guns into killing machines, assault weapons and other firearms that pose extreme dangers to public health and safety," Lockyer said.
The pension fund has investments in private equity firm Cerberus Capital Management LP, which owns the manufacturer of an assault weapon used at Sandy Hook Elementary School in Newtown, Conn. The pension fund also owns shares of Sturm, Ruger & Co. and Smith & Wesson Holding Corp., two publicly traded gun-makers.
The three investments make up a tiny fraction of the pension system's holdings, about $11.7 million out of the $155 billion fund, according to CalSTRS staff.
Harry Keiley, a high school teacher with the Santa Monica-Malibu Unified School District and chairman of the board's investment committee, said before Wednesday's vote that the pension board has the power to change its investments.
After the shooting, Keiley said: "I sat there with all of my thoughts and feeling very powerless knowing that I don't sit on the Supreme Court, I don't cast a vote in the United States Congress, I don't sit in the state Legislature. I'm a school teacher and dad. And then it dawned on me ... that I and this board are not powerless."
Staff will meet with the companies and determine the impact divesting would have on the pension system. They'll report back to the board at an unspecified date.
Cerberus has said it is attempting to sell its stake in Freedom Group International, which makes the .223-caliber Bushmaster rifle used in the school shooting.
Lockyer also wants the California Public Employees' Retirement System, the nation's largest public pension fund, to divest from companies that make the types of weapons and high-capacity magazines that are illegal in the state. The federal assault weapons ban expired in 2004, but California has its own ban.
The treasurer, who sits on both pension boards, is expected to make a formal motion for CalPERS in February.
CalPERS did not return a call for comment Wednesday.
The teachers' fund invests retirement benefits for more than 850,000 California public school teachers, workers and their families. It invests more than half of its assets in stocks but also has investments in bonds, private equity, real estate and other categories.
CalSTRS Chief Investment Officer Chris Ailman said Cerberus' investment in Freedom Group didn't raise flags because the fund's ethics policy was not expanded to include private equity investments until 2008, after the fund invested in Cerberus. Ailman said staff did not look at past purchases.
"At this point in time in 2008, we were very much focused on the external part of the portfolio in the emerging markets, and sadly, not so much on the U.S. equity portfolio," Ailman told the committee Wednesday. "I'd also point out in '08 as we did this, with the financial collapse, our attention very much became focused on mortgages, Wall Street and just the entire financial crisis at the time."
He said companies that manufacture firearms that are illegal in California could violate the fund's policy on human rights and human health.
Since the mid-1970s, the retirement system has factored political, environmental and social conflicts in reviewing potential investments. CalSTRS was one of early funds to divest from companies doing business with South Africa in an effort to end racial apartheid. The fund also avoids oil and energy investments in Iran and removed tobacco companies from its stock holdings years ago.