California State Controller Eyes CalPERS Private Prison Divestment

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.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

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.

CalPERS Says No to Legislation Forcing It to Divest from Private Prisons

CalSTRS Investment Committee Was Split on Private Prison Divestment

Tags: CalPERS, Corecivic, Divestment, Pension, prisons, Private Prisons, The GEO Group

President Donald Trump disconcerted Wall Street Tuesday by taking a downbeat view of the US-China trade talks. Now, some say that Trump will want to cut a deal to get the trade war—unpopular among Americans—over with in time for his reelection drive next year.

But let’s say a pact is forged. What would it look like?

A study by the Center for Strategic & International Studies (CSIS) has some answers. William Alan Reinsch, a CSIS senior adviser, writes that there are two ways to win in a trade competition: “Run faster or trip the opponent.” Trump wants to use the trip strategy, setting up an agreement that would hobble Beijing. Obviously, the Chinese regime won’t be a party to that.

Hence, a trade settlement would have three elements, Reinsch writes:

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

China buys more US goods. After his meeting with Chinese leader Xi Jinping at the G-20 summit in Japan last month, Trump contended Xi had agreed to buy more US agricultural products. Thus far, it’s unclear whether Xi really went along with that. The question of US manufactured goods going to China remains unresolved. Still, this point is the easy one, Reinsch contends.

“That is not difficult for China to do,” the CSIS scholar notes, “and it scratches the president’s itch for a visible concession that he can boast about, and which will reduce our bilateral trade deficit.”

The downside, however, is that—even if the US could manufacture as many goods as the Chinese might want to buy—the result would be an over-concentration of exports to China, at the expense of other markets. Such a development, Reinsch maintains, “would make us more, rather than less, vulnerable.”

Chinese structural reforms. Namely, barring intellectual property theft and ending the requirement US companies to partner with Chinese counterparts, thus allowing them to make off with American know-how. But doing this still leaves the state-dominated economy in place, presumably with government subsidies to keep giving their homegrown entities a leg up.

China would be reluctant to abandon Communist Party control of the means to production and enterprise, in Reinsch’s view. What’s more, Beijing wouldn’t want to surrender its economic adrenaline, those state subsidies. So the structural provision would be limited in its scope.

Enforcement of the agreement. This is the really hard part. “The United States insists that China give it the unilateral right to determine compliance and to act unilaterally if Washington believes it is necessary,” Reinsch declares. The Chinese view such an apparatus as a violation of their sovereignty, and prefer a “consultation process,” which Washington thinks is too weak a stricture, he explains.

It won’t be the negotiators who will resolve this Gordian knot of a question, he writes. This will “end up in the laps of the two presidents.”

Trump Might Win Reagan-Style Victory over China, Says El-Erian

Trade War Could Shove US into a Recession, Morgan Stanley Says

Tags: China, Donald Trump, Trade War, Xi Jinping