Calif. Pensions Reviewing Investments Tied to Border Enforcement (1)

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Madison Alder

California’s two largest public pensions are reviewing their investments in hedge funds and companies that have ties to the Trump administration’s immigration enforcement efforts at the U.S.-Mexico border.

Some of those companies include General Dynamics Corp ., GEO Group, and CoreCivic Inc . All three own or provide services to private prisons that have been used to detain immigrants.

The American Federation of Teachers recently called on pension funds nationwide—including the California State Teachers Retirement System and the California Public Employees Retirement System—to look through their portfolios for asset managers invested in companies it says are profiting from detaining families. The teachers union also released a “watch list” of 26 hedge funds with stock investments in the three companies worth over $4 billion combined.

CalPERS and CalSTRS aren’t rushing to remove their investment in these three companies. Both pensions are considering their position, but generally favor engagement over divestment.

“Engagement has proven to be more effective than divestment when raising concerns with companies,” a CalPERS spokeswoman told Bloomberg Law in an email.

Similarly, CalSTRS said it started an engagement process with its private prison investments July 20 in which “staff will communicate with management, review policies and procedures, and visit facilities to see firsthand how they comply with policies, laws and standards.”

Political Motivation?

Both GEO and CoreCivic said the report from the AFT was politically motivated. The private prison operators said they haven’t detained unaccompanied children and don’t have a role in the politics of immigration enforcement.

“Pension funds and other institutions should not allow politics to play a role in investment decisions,” GEO spokesman Pablo E. Paez told Bloomberg Law in an email Aug. 15.

CoreCivic pointed to the relationship the company has had with the federal government for over 30 years, regardless of the party in office.

“The fact is our sole job is to help the government solve problems in ways it could not do alone,” Steve Owen, a spokesman for CoreCivic, told Bloomberg Law in an email Aug. 15.

General Dynamics didn’t respond to a request for comment.

New York City’s pension funds announced last year that they were divesting their investments in GEO and CoreCivic.

The prison operators, both of which run facilities holding immigrant families in Texas, experienced stock gains while U.S. markets remained stagnant, Bloomberg reported in June.

The AFT pointed to the Trump administration’s “zero-tolerance” immigration policy, which was responsible for separating more than 2,000 children from their families in May and June, as part of the basis for its recommendation that pensions review their investments.

That, combined with a history of “abusive practices, legal violations and reckless fiscal management” at Immigration Customs Enforcement detention centers, the union said, makes the investments risky for pension funds.

CalPERS and CalSTRS held nearly $240 million in stocks of the three companies combined as of Aug. 14, according to Bloomberg Terminal data.

The California Federation of Teachers in July specifically called on CalSTRS, the second-largest public pension fund in the U.S., “to pressure companies that they invest in to stop profiting off family separations at the border.”

“They can help change the behavior of the organization,” Matthew Hardy, spokesman for the CFT, told Bloomberg Law. “They certainly have the power to do that.”

-- with assistance from Ayanna Alexander

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