The Bushmaster connection

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JANUARY 29, 2013

In a prudent move, Cerberus Capital Management is seeking to sever its financial ties with the manufacturer of the assault weapon used in the Newtown, Conn., massacre. It’s a necessary decision, considering that the private equity firm’s clientele includes public institutions such as the University of California. It is imperative that the university separate itself financially from association with firearms to remove any stake in looser gun regulations.

The university’s link to Bushmaster, the gun manufacturer, comes through a more than $35 million investment in Cerberus, which in turn owns Freedom Group — a cluster of firearm companies that includes Bushmaster. Accurately gauging public sentiment, Cerberus is attempting to divorce itself from Bushmaster. But selling Freedom Group is an uphill battle.

According to Bloomberg, Cerberus has struggled to find banks to cooperate with the sale, apparently due to the bad publicity it would entail. To the university’s credit, UC spokesperson Dianne Klein has indicated that the retirement plan’s investment in Cerberus would be called into question if Freedom Group cannot be sold.

In any case, the university must disassociate itself from the maker of weapons used to kill innocent people. If the UC Retirement Plan fails to extinguish its connection to Bushmaster, the university would retain about $1 million in the gun manufacturer. Some might argue that withdrawing funds from Bushmaster — or Cerberus — is too political a statement for the retirement fund to be involved with, but keeping the connection intact is already politicized. It would imply support of a company that makes weapons that can kill large amounts of people — an inappropriate association for a university, which should prioritize the safety of its students.

But the university’s eagerness to disassociate itself from the improper financial relationship does not require it to expedite its withdrawal in the instance that Bushmaster cannot be sold.  While removing significant holdings in the firm would indeed signal that the university’s commitment to ethical financial activity supersedes profitable investments, it would be irresponsible in this case to do it too quickly.

If the university finds that the only way to end its support of Bushmaster is to end its support of Cerberus, it must closely examine its options before moving money. Carefully investing the funds elsewhere would be much better for the health of the retirement plan, which faces a roughly $11 billion unfunded liability.

Additionally, it is deeply concerning that the university was not aware of its Bushmaster connection until recently. Why did officials not know the retirement plan’s money was being used in this way? The university’s ignorance calls into question whether it holds any other unethical investments. To avoid similar situations in the future, the university needs to analyze how its money is being spent, even if controversial holdings such as the Bushmaster investment are made on behalf of the university, not by it.

Hopefully, Cerberus can sell the gunmaker, thereby terminating the university’s relationship with it. But the university must take action to ensure that this never happens again.

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FEBRUARY 01, 2013