California State Controller Eyes CalPERS Private Prison Divestment

Via Chief Investment Officer

CalPERS board member and State Controller Betty Yee says it may be time for the retirement system to cut its holdings in companies running private prisons, a major reversal for the influential California politician who has previously sided against divestment.

Yee’s comments to CIO came after three dozen faculty members at the California State University system pressed the CalPERS board at its retreat meeting on Monday to divest their holdings in US private prison companies CoreCivic and The GEO Group.

The faculty members, along with other CalPERS members opposed to the system’s investments in the private prison companies, have become a fixture at CalPERS meetings. But the board, which generally is against being forced to divest from companies, has not publicly taken up the issue despite the outcry.

The CalPERS board also has opposed action by state legislators that would bar the retirement system from investing in the stock of the prison companies. This is in contrast to the California State Teachers’ Retirement System board, which voted in December 2018 to divest from CoreCivic and The GEO Group.

Yee was one of five votes against CalSTRS’s divestment in a 6-5 vote. She argued at the time through a representative that engaging the private prison companies was a better course of action.

No longer.

Yee told CIO that the “egregious conditions” at migrant border facilities has raised the issue of private prisons housing migrants to a new level.

Recent accounts of migrant children living in squalor at US Customs and Border Patrol facilities hasn’t not involved the two private prison companies. Yee said it does not matter.

She said the migrant detention focuses attention on the larger issue of the two private companies housing migrant adult attendees and children.

Both companies say they don’t set policy and are just contractors with the federal government, which is responsible for the detainee policy.

“I thought engagement made sense,” said Yee of her CalSTRS vote. She said given the “egregious activities” occurring regarding the treatment of migrant detainees, “CalPERS needs to take a serious look at the issue of private prison companies running detention facilities.”

“No one deserves that kind of treatment anywhere,” she said of the migrant detention.

Yee said from a fiduciary point of view, investment in the private prison companies is becoming increasingly riskier, given that several major banks have stopped doing business with the companies and the stock of the companies has been in a tailspin.

CalPERS spokesman Wayne Davis told CIO that the CalPERS investment office is continuing to engage management of the two private prison companies and evaluating whether divestment would be a prudent course.

Jennifer Eagan, political action and legislative chair for the California Faculty Association, told the CalPERS board Monday that faculty members reject the system’s refusal to tackle the issue.

“We know the board’s position is that stakeholders shouldn’t be able to tell them what to do,” she said. “Our argument is twofold: the immorality of what these corporations are doing, as well as investments being poor and risky. There is no reason to hold onto these stocks from a fiduciary point of view.”

Stock prices of the two private prison companies have been falling following remarks last month by presidential candidate Sen. Elizabeth Warren that she would move to ban federal contracts with private prisons if elected.

A number of banks have also announced recently that they will not do business with the prison companies, including Wells Fargo, Fifth Third Bank, J.P. Morgan Chase & Co., Bank of America Corp., and Sun Trust Banks.

Shares of CoreCivic closed at $17.47 Tuesday, down 2.57% from the opening price. The stock has traded as high as $26.09 over the last 52 weeks. The GEO Group, meanwhile, closed Tuesday as $18.66, down 1.01% from the opening bell. The stock had been trading as high as $27.06 over the last 52 weeks.

Congress is also getting into the action. At least one congressional committee has said that it will investigate The GEO Group and CoreCivic and their role in housing migrant children and adults.

As the Trump administration took office in 2016, the administration reversed an Obama administration ban on the federal government contracting with the two companies. The Trump action helped increase the stock price of the two companies.

Yee said she will push the CalPERS board to have a public discussion and a vote on divestment from the two private prison companies in the next several months.

In addition to CalSTRS, other major pension plans that have divested from the two private prison companies are the New York City Pension Plans and the New York State Common Retirement Fund.

With over a $170 billion global equity portfolio, CalPERS’s investment in the two private prison companies is relatively small, several hundred million dollars. A move, however, for the largest US pension plan to divest could certainly carry symbolic value. Yee said she is convinced that CalPERS needs to take a stand.

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