Large pensions keep quiet after Warren blasts private prison industry

By Teddy Grant and Justin Mitchell

Public institution investors of several private equity firms have taken a decidedly neutral stance on private prison investments despite public outcry about the ways the industry treats inmates and a public thrashing by presidential hopeful Sen. Elizabeth Warren.

Warren called out American Securities, Apax Partners, BlueMountain Capital, H.I.G. Capital and Platinum Equity in letters on her website because of their investments in companies that provide support services to the private prison industry.

New Mexico’s State Investment Council, for example, invested more than $300 million with Platinum Equity funds in the last decade, with the latest being a $75 million commitment to Platinum Equity V in March. Fund V invested in Securus Technologies, a company that provides inmate calling, emailing, money transfer and electronic monitoring services. Warren and other critics claim the company charges inmates exorbitant prices for its services.

“With these types of investments, we’re passive investors,” Charles Wollmann, New Mexico State Investment Council’s director of communications and legislative affairs, said.

Warren in her Sept. 30 letter to the firms requested information involving the private equity firms’ “structure and finances” as it relates to companies that they invest in that provide support services to correctional facilities. Warren wrote the letter along with Mark Pocan (D-Wisc.) and Alexandria Ocasio-Cortez (D-N.Y.)

“These support companies, responsible for providing support medical, food, and phone services to prisons, jails, and detention facilities housing over two million incarcerated people across the country, often deliver low-quality services to incarcerated individuals and their families at exorbitant fees, collecting over $40 billion in tax-payer funds annually,” Warren, Pocan and Ocasio-Cortez wrote.

Warren’s campaign did not respond to Buyouts’ request for comment.

Pennsylvania Public School Employees’ Retirement System came under fire by advocacy groups, Worth Rises and Private Equity Stakeholder Project, earlier this year for its proposed investment with Platinum.

Despite the protest and a delayed vote, PA PSERS committed up to $300 million in August to Platinum Equity Capital Partners V, targeting $8 billion, Buyouts previously reported.

PA PSERS press secretary, Steve Esack, told Buyouts in August that the “board of trustees certainly listened and considered the input from the advocacy groups, but on balance believed that the new Platinum fund is a good investment.”

The system declined to comment for this story. Platinum Equity did not respond to a request for comment.

Other systems

In March, Kansas Public Employees Retirement System committed $50 million to Platinum’s fifth fund. KPERS did not respond to requests for comment.

Los Angeles City Employees’ Retirement System committed $50 million to Platinum Equity’s fifth fund in August. LACERS declined to comment. LACERS’s PE consultant, TorreyCove Capital Partners, did not respond to requests for comment.

Another firm on Warren’s radar was Apax Partners. Apax acquired Attenti, an electronic monitoring company, in 2017. It’s not clear what fund Apax used to buy the company.

Apax said Attenti should not have been included in Warren’s letter. The company provides people-monitoring technologies—like ankle-tracking bracelets—that helps law enforcement and correctional agencies monitor offenders.

“Apax Partners believes it has been incorrectly identified by Senator Warren and Representatives Pocan and Ocasio-Cortez as the Apax Funds do not own companies that provide prison or correctional facility support services. The Apax funds do have an investment in Attenti, a company that provides state and local law enforcement agencies with electronic monitoring solutions which are an alternative to incarceration, helping to improve offender rehabilitation and chances of employment, while keeping communities safe,” the firm said in a statement.

State of Michigan Retirement Systems committed $50 million to Apax Partners’ debut technology fund, Apax Digital, in 2017, Buyouts reported. Michigan also committed to Apax IX.

“You’ll have to direct your questions to Apax,” Michigan spokesperson Ron Leix said in an email. “We are limited partners in a fund and don’t decide or control investments made within those funds.”

California State Teachers’ Retirement System committed more than $800 million to Apax Europe VI and VIII as of March 2019, according to a PE portfolio performance document, and $300 million to Apax IX.

“CalSTRS continually monitors its holdings, engages companies and collaborates with other institutional investors and general partners to monitor and address the risks to the portfolio and develop and implement action plans to mitigate those risks,” CalSTRS spokesperson Thomas Lawrence told Buyouts in an email.

CalSTRS divested from two public companies, CoreCivic and GEO Group, that run private prisons in November 2018, its website shows.

Other pension systems in Apax funds include Canada Public Pension Investment Board, New York City Police Pension Fund, New York City Fire Department Pension Fund, Virginia Retirement System, Washington State Investment Board, and Kansas.

Washington spokesperson Chris Phillips said there was “no action taken or considered” concerning investments in prison industry companies. He added that “investment exposure is nominal.”

The New York City Comptroller’s office did not answer a request for comment. Virginia Retirement System declined to comment.

American Securities faced scrutiny from Warren for its investment in inmate calling company Global Tel Link, which it acquired in 2011 through its sixth fund. Fund VI closed on more than $3.6 billion in 2012.

U.S. pensions, such as New York City Comptroller’s Bureau of Asset Management, which oversees investment for five city pension systems including the Police and Fire Departments, Teachers’ Retirement System of Louisiana, Montana Board of Investments, Massachusetts Pension Reserves Investment Management Board, Los Angeles Fire and Police Pension (LAFPP), San Francisco Employee Retirement System (SFERS), State of Wisconsin Investment Board, Teacher Retirement System of Texas, El Paso Firemen and Policemen’s Pension Fund, Public Employee Retirement System of Idaho and LACERS have committed to American Securities funds, including American Securities Partners VI, VII and VIII.

“The benefits of investing in private equity firms are significant and contribute to our fully funded status and long-term strong returns,” SWIB Communications Manager Vicki Hearing said in an email to Buyouts. Wisconsin committed $100 million to American Securities Partners VI and $75 million to the seventh fund.

“Although we are passive investors in private equity funds, as part of our business relationships with our managers, we do discuss issues that can impact investment performance and, at times, items our constituents may bring to our attention,” Hearing said.

American Securities, Louisiana Teachers, Idaho PERS and Texas Teachers declined to comment for this story. Montana Board of Investments, MassPRIM, LAFPP and SFERS did not respond to requests for comment.

H.I.G. Capital was also in Warren’s crosshairs for its 2012 investment in Trinity Services Group, which provides food and commissary services to correctional facilities in 43 states.  HIG made the investment out of its HIG Middle Market LBO Fund II, according to a federal document.

Alaska Permanent Fund and Maine Public Employees Retirement System committed $10 million and $45 million, respectively, to H.I.G. Middle Market LBO Fund II in 2013 and 2014.

The University of California invested $25 million to the fund in 2014, according to the university’s PE holdings disclosure form. “The University of California’s Office of the Chief Investment Officer has no comment on this matter,” Senior Communications Strategist Stett Holbrook said in an email.

Maine PERS and Alaska Permanent Fund did not respond to a request for comment.

Action Item: Read Warren’s letters here.