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CalSTRS targets another private equity gun investment

  • Assets under management: $215.3 bln
  • Allocation to private equity: $17.9 bln
  • What’s new: CalSTRS updates its policy on gun investments and may exit its exposure to a KKR-backed retailer that sells military-style rifles.

California State Teachers’ Retirement System may be divesting its exposure from another gun-related investment in its private equity portfolio.

The system will work with Kohlberg Kravis Roberts on its exposure to Academy Sports + Outdoors, which sells an array of firearms, including military-style semiautomatic assault rifles. KKR acquired Academy Sports in 2011.

The system could attempt to exit its exposure to the company by selling its stake on the secondary market as part of CalSTRS’s updated policy on gun-related investments. The policy calls for the system to engage with gun makers and sellers publicly before choosing to divest.

“We will engage directly as shareholders of publicly traded securities. As limited partners in private equity investments we’ll engage via our general partners,” said Michael Sicilia, spokesman for CalSTRS.

It’s not exactly clear which fund KKR used to acquire Academy Sports, but it’s likely the 2006 fund.

CalSTRS in pension documents listed its exposure to Academy as $1 million in bonds. The system in the documents didn’t list its exposure through the private equity fund.

Sicilia explained that “KKR wasn’t in the staff report because by contractual agreement, limited partners in private equity investments are prohibited from revealing details, other than very general information that is publicly reported regarding commitments, deployments of funds and returns on investment. … Going forward, with the board’s authority, we will be engaging our portfolio partners as per the new policy and our previous statements.”

CalSTRS sold its exposure to another private equity gun investment in Remington Outdoor in 2015. Cerberus Capital Management, which owned the company at the time, allowed LPs with exposure to the company to sell their interests.

At the time, CalSTRS also sold all its interests in public companies that made firearms that were illegal in California, like the Bushmaster AR-15 semiautomatic assault rifle used in the Sandy Hook Elementary School shooting.

CalSTRS also established a policy that excluded it from such investments made by its private-market managers.

In the wake of the shooting at Stoneman Douglas High School in February, Dick’s Sporting Goods said it would no longer sell military-style assault rifles and would destroy such products that remained unsold. Academy Sports, on the other hand, said it would continue to sell such firearms.

CalSTRS this month announced its updated policy to publicly work with its investment managers, both on the public and private side, on gun-related investments that involve military-style assault rifles.

If the public engagement doesn’t work to move the companies away from military-style assault rifles, divestment is the last option, the policy said.

“Unlike other CalSTRS engagements, where staff generally prefers a quiet engagement approach, this engagement may be more effective with a customized public engagement strategy,” the policy said. “To date, the element of social pressure has proven far more effective, as evidenced by the companies’ responses to the social attention.

“Therefore, in addition to our usual engagement strategies, staff proposes an engagement to leverage that wave and develop a public communication plan to highlight areas of firearm concern and applaud responsive companies,” the policy said.

CalSTRS is a limited partner in several KKR funds, including its 2006 fund; North America Fund XI and Americas Fund XII, along with KKR Asian Fund III.

Kristi Huller, a KKR spokeswoman, declined to comment “out of respect for our partnership and our confidentiality obligations with all our LPs.”

KKR, like other PE firms, does work with LPs on secondary-market sales. “KKR has certainly accommodated some of its LPs by being flexible about transfers in those cases,” Huller said.