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Public Pensions Pour Millions into Private Prison Companies

A New York State pension fund holds one of the largest investments in the country

This story was published in collaboration with The Guardian US

Millions of US taxpayer dollars are being invested into private prison operators involved in the detention of thousands of migrants across the United States, an investigation shows.

Some of the largest investments, which are by pension funds for public sector workers such as teachers and firefighters, come from states with ‘sanctuary’ policies, like New York, California and Oregon.

Nationwide, at least 20 pension funds and plans have invested in GEO Group or CoreCivic, the two biggest private prison operators, according to a Guardian/Documented analysis of US Securities and Exchange Commission (SEC) filings.

These funds range from big organizations like the California Public Employees’ Retirement System, which manages $81bn in stock holdings, to the more modestly sized funds like the New Mexico Educational Retirement Board, which manages about $2.3bn.

Public worker funds across the US have at least $67m currently invested in the two companies, according to filings from the first quarter of 2019, which likely show just a portion of the total amount of public sector pension money invested in both companies.

The two firms have become more attractive to investors after Donald Trump became president, pushing tougher immigration policies. The firms have secured contracts worth hundreds of millions of dollars from Immigrations and Customs Enforcement (Ice) which has turned to private operators as it has detained growing numbers of immigrants.

‘Complicity is unacceptable’

While the holdings in the SEC filings are only a tiny proportion of the estimated $3.8 trillion invested in public retirement funds, immigration advocacy campaigners and some lawmakers say they have a symbolic power, and have called for public pensions funds to follow the lead of some banks and disinvest.

Last week it emerged one of Canada’s biggest pension funds quietly divested from the two firms after the Guardian/Documented had reported late last that the Canadian Pension Plan Investment Board (CPPIB) held nearly US$8m in stock in Geo Group and CoreCivic.

Disinvestment in private prison operators sent a powerful message, according to Daniel Altschuler, director of civic engagement and research at Make the Road New York, an immigrant advocacy organization.

“Taking a stand sends a message that complicity with companies that are profiting from people’s pain is unacceptable,” said Altschuler.

This is a message some major banks have been getting, he added. “As some cities and states either divest or look at divestment, the banks have been aware of that.”

In March, JPMorgan Chase & Co decided to stop financing private prison companies. They had previously underwritten bonds and syndicated loans for GEO Group and CoreCivic.

Earlier this week, SunTrust Bank announced it would be ceasing to do business with the private prison industry. Last month Bank of America did the same.

The Miami Herald reported that the bank had provided Caliburn, the operator of a Florida facility where roughly 2,300 migrant children are held, with a loan of $380m and a $75m credit line. The bank said that it decided to cease doing business with prison operators, in part due to “the concerns of our employees and stakeholders in the communities we serve,” a Bank of America spokesperson told CNN.

Private prison operators boom in Trump era

Towards the end of Barack Obama’s second term, the Justice Department decided to discontinue all use of private prison corporations to house American prisoners and immigrant detainees. The stock for GEO Group and CoreCivic immediately plummeted over 30 percent each.

But shortly after Trump was sworn in, he discontinued the DOJ policy, the stock of both companies slowly started climbing again. Between fiscal year 2015 and fiscal year 2018, as the administration began to ramp up its crackdown on immigrants, the targeted average daily population of detained immigrants grew 50 percent.

Since January 1, 2017, GEO Group has won agency contracts worth over $390m according to data from USA Spending, the federal government’s spending tracker. CoreCivic received over $228m in the same timeframe.

Biggest investments from New York and California

According to the SEC data, the largest investments into both companies come from The New York Teachers Retirement System, which has a total investment of $9.5m and The California Public Employees Retirement System (CalPERS), which has an investment of $9.5m into the companies.

Other states with immigrant friendly policies and investments in the two companies include Oregon, New Mexico, Colorado and Utah.

The State Board of Administration of Florida Retirement System reported about $3.8 million in the first quarter of 2019. In a response to questions, John Kuczwanski, Manager of External Affairs, for the fund, said they had over $16m invested in the two companies, actively and passively.

About half of the 20 pension funds responded to a request for comment on their holdings.

Most of them said they made their investments through following indices created by financial research firms like S&P. Some had portions of their money managed by external firms.

Some funds said environmental social and corporate governance (ESG) principles informed investments; several said they had no ESG guidelines.

In a statement, the New York Teachers Retirement System (NYSTRS) said their holdings in the two firms are “primarily passively held in portfolios that track a broad market index. NYSTRS is mindful of balancing fiduciary duties with environmental, social and governance concerns in investing. Where appropriate, and on a case by case basis, we express our views on ESG through our proxy voting program.

“For example, there was a recent GEO Group shareholder proposal calling for the publication of an annual human rights report. NYSTRS voted for this proposal.”

The California Public Employees Retirement System (CalPERS) said: “CalPERS global equity portfolio is comprised of more than 10,000 companies from across the globe, and is largely managed through an index oriented investment strategy. For more information on CalPERS’ investment strategies, see our policies page … [and] our CalPERS Governance & Sustainability Principles.”

The Oregon Public Employees Retirement Fund grew its investment over 45 percent from the first quarter of 2015 to the first quarter of 2019, from about $1.4m to about $2m.

Arizona’s state retirement fund its investment grew 44 percent.

Best returns

Some funds said maximizing returns was their focus, not social concerns.

“We’re not a social investor. We want to get the best return while managing risk,” said Beau Barnes, Deputy Executive Secretary and General Counsel at the Kentucky Teachers Retirement System.

A representative from Pennsylvania’s Public School Employees Retirement System said that fund does not have ESG principles either, and only follows a state law that forbids them from investing in companies with ties to Sudan and Iran.

“Our statues generally prohibit prioritization of social investing considerations over maximization of long term risk adjusted returns,” said Matt Clark of the South Dakota Investment Council.

While GEO Group has maintained a relatively stable price, CoreCivic has plummeted from about $30 to $19 in three years. The median growth in investment over the course of the Trump administration was 14 percent.

Collectively, these 20 public sector funds manage more than $319bn, of which just 0.02 percent is invested in those two private prison companies.

Some public pensions have been resistant to calls to divest.

After a hard-fought campaign spearheaded by a group of advocates called Educators for Migrant Justice, the California State Teachers’ Retirement System into divested the fund’s holdings from CoreCivic in November 2018 and GEO Group, which amounted to about $12m.

Now, advocates are focusing on the California Public Employees’ Retirement System (CALPERS).

“We’re starting to see traction with board members,” said Emily Claire Goldman, founder and director for Educators for Migrant Justice, an ESG transparency initiative. Goldman explained that the pension fund industry has started increasingly using private equity as an investment vehicle, which she said “is a complete black box.”

CoreCivic and GEO Group say they follow the government’s guidelines for detention practices and routinely pass inspection. “GEO’s facilities are highly rated by independent accreditation entities … and provide high-quality services in safe, secure, and humane residential environments,” the company said in a statement.

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