State investments mix with gun money

(WISH Photo, file)

INDIANAPOLIS (WISH) – A controversial series of state investments uncovered by I-Team 8 could spark debate as lawmakers return to the Statehouse next month. The investments were made using tax money into companies that manufacture guns and ammunition.

The investments, totaling $81 million over the last decade, were made through the Indiana Public Retirement System (INPRS) on behalf of state workers, teachers and other government employees. That decision is not sitting well with some Hoosiers, who say public money should not be used to support commercial weapons manufacturers.


The investments were all made with Cerberus Capital Management, a Manhattan-based private equity firm with more than $20 billion in assets. Cerberus, now chaired by former Vice President and Indiana U.S. Senator Dan Quayle, is the same fund that helped prop up Chrysler Motors during its financial troubles in 2007.

In 2007, Cerberus purchased Bushmaster Firearms. Several other gun and ammunition companies were added a short time later, including Remington Arms, Dakota Arms and Marlin Firearms.

The new conglomerate of companies, known as the Freedom Group, made Cerberus the largest manufacturer of guns and ammunition in the U.S.

Freedom Group, through its investors at Cerberus, grew quickly. Initial investors included INPRS.

According to reports from The New York Times, other financial backers include California’s teachers retirement fund, which has invested nearly $750 million in the fund. Pension funds for police officers and firefighters in Los Angeles, Calif, Endowments at the Universities of Texas and Missouri, Regents at the University of California, and public retirement systems in Wisconsin and Pennsylvania are also listed among Cerberus’ long list of investors.

Investment records obtained by I-Team 8 show Indiana made an initial $3 million investment into Cerberus’ Series Three fund in 2003, followed by a $78 million investment into Cerberus’ Series Four fund in 2006. The Series Four fund is now largely dominated by Freedom Group’s assets, and that’s not sitting well with gun control advocates like Dr. Stephen Dunlop.


“I think Indiana could find better uses for its money,” said Dunlop, a retired psychologist who serves as President of Indianapolis-based Hoosiers Concerned About Gun Violence. “Guns, from a community point of view, create huge problems for communities. So, why would the state — a governmental entity — want to make things worse [by supporting them]?”

Dunlop is one of a growing number of critics who say investments backed by tax money should immediately divest from Cerberus’ funds. The calls began to grow in the days immediately following the December 2012 shooting deaths of 26 children and teachers at Sandy Hook Elementary School in Newtown, Conn. The suspected shooter, Adam Lanza, used a Bushmaster XM-15 during the attack.

Days after that shooting, California’s State Teacher Retirement System (CalSTRS ) said it would immediately begin the process of pulling its support of firearms manufacturers, in part because assault rifles, like models manufactured by Bushmaster, are illegal in that state.

“The CalSTRS Investment Committee moved rapidly in January 2013 to direct investment staff to begin the process of divesting of any and all companies that manufacture firearms illegal for private citizens to purchase in California, such as the assault-style rifle used at Sandy Hook Elementary, in accordance with its Divestment policy,” wrote CalSTRS Chief Investment Officer Christopher J. Ailman in a statement last week. “In April, after final board approval, CalSTRS sold its interests in two public companies – Sturm Ruger and Smith & Wesson, valued at nearly $3 million.

“However, in the private equity area, CalSTRS is a limited partner, one of many clients of Cerberus, which has day-to-day control of its funds, buys and sells companies under its investment strategies, and makes decisions about fund management. Cerberus informed us three days following the Newtown incident of their intent to sell Freedom Group, and has been working to line up a buyer ever since,” Ailman continued.

Twelve months later, Freedom Group remains unsold. CalSTRS — and Indiana’s — investments with Cerberus remain intact.

“We remain steadfast in our call for Cerberus to sell off Freedom Group, and we believe they have made a good faith effort,” CalSTRS spokesman Ricardo Duran told I-Team 8 by phone from California. “At this point, we are monitoring that situation and hoping a buyer is found soon.”

Dunlop isn’t as convinced.

“If I were a teacher, I’m not happy with the idea that these assault rifles are out in the community, that there’s very little regulation of who has them, and we know that they’re occasionally used in school shootings. Why would the state want to invest its money in making them? The likelihood of [a school shooting] happening is proportional to how many guns you put in the community and how many disturbed individuals you have. The [more guns], the more likely a gun is to end up in a disturbed individual’s hands, and the more likely you are to have one of these shootings. So, it doesn’t make too much sense for a state which spends so much money to protect its citizens to then invest money in the very tool that’s used to make things worse,” Dunlop said.


INPRS makes no qualms about it: its focus is on the bottom line.

“At the end of the day, the Indiana Public Retirement has to invest for the future benefit of the members, which means we have to be focused on investment return,” said INPRS Communications Director Jeff Hutson. “And, while there are certainly good arguments for any type of investing to ask what should we be invested in, those social type investing decisions are ones that have to be secondary to us focusing on a return.”

INPRS is directed by lawmakers to invest money in a prudent way, Hutson added.

“The law says we have to maximize the appropriate return, a risk adjusted return. So, we’re not trying to swing for the fences and get a very, very high return, but a good, stable return over the years to fund the retirements for the members. There is certainly a look at what the funds do, and where the [money is being invested]. But, there’s not a strong social investing bent here at the Indiana Public Retirement System, because we have to focus on getting an appropriate risk adjusted return for members,” he said.

Others argue social factors shouldn’t play a role at all.


“It’s not a controversial cause,” said MeLinda Porter, a Delaware County gun rights advocate and founder of Indiana Moms Against Gun Control. “The company has been around for over 100 years. They’re not doing anything illegal. It’s perfectly legal to make guns. And, some of the state employees are part of it. You’ve got sheriff’s departments and police officers who carry guns for a living. That’s what they do. They have them at home. Why would they not want to invest in something that they use every day?”

Porter added that Cerberus supports American companies and jobs. She argues Freedom Group has helped put Indiana’s pension system back on solid financial footing.

“When you’re looking at investments, you’re looking for companies that are making money. That’s what investments are about. They’re not doing anything illegal. So, there’s no reason not to look at them,” she said.

But, Dunlop argues the investments don’t have to be illegal to be a bad idea.

“I think they could easily find other suitable investments that are not in products that directly damage the community in which they exist,” he said.


“Swapping” investments could be complicated, Hutson said, in part because of INPRS directive to maximize risk adjusted returns. Records obtained by I-Team 8 show both Cerberus funds INPRS holds investments in have seen a steady rate of return over the past five years.

INPRS has no plans to divest from the funds unless it’s directed to do so by the General Assembly, Hutson said.

“I think it’s a fair conversation to have in the state of Indiana, in terms of how we should be investing our money. But, it shouldn’t be a decision that’s made by just a handful of people and their personal values. It should be a policy decision made by the state,” he said.

Still, similar conversations over investing decisions have resulted in legislative action before.

“They have passed laws that have said you should not be investing in companies that do business in Sudan. They have passed laws that said you should not be investing in companies that are found to be state sponsors of terrorism on the Department of State list. And, when they pass that legislation, we are very happy to comply,” Hutson said.

But, the conversation over divesting in Freedom Group may be a tougher sell, some lawmakers said.


Despite bright national spotlights on mass shooting incidents like those in Newtown and Aurora, Colo., few states have seen legislators call for action on investments like those in Cerberus. Indiana Senator Lindel Hume (D-Princeton), who sits on the legislature’s joint Pension Management Oversight Commission, says calls have been muted in Indiana so far as well.

“Whether or not [INPRS] invests in a company that may be doing something we consider questionable is going to be difficult for us to have any real input into,” Hume told I-Team 8. “It may be a discussion that needs to be had. But, I’m not sure that the legislature wants to get involved in every investment that’s made by INPRS. There are probably other companies that manufacture either deadly weapons or other devices or chemicals or things that at some point might be part of a very serious problem. And, I’m not sure the legislature can get involved in every one of those effectively.”

Still, he believes the issue may gain traction at the Statehouse if Freedom Group isn’t sold quickly.

“I think you’ll find someone who will file legislation on any controversial issue, so I suspect we’ll probably see something on it,” he said.

The debate ahead could be shaped in part by Cerberus itself. The company has repeatedly attempted to distance itself from ongoing battles over gun control.

“As a Firm, we are investors, not statesmen or policy makers,” the company said in a statement released shortly after the Sandy Hook Elementary shootings. “Our role is to make investments on behalf of our clients who are comprised of the pension plans of firemen, teachers, policemen and other municipal workers and unions, endowments, and other institutions and individuals.  It is not our role to take positions, or attempt to shape or influence the gun control policy debate.  That is the job of our federal and state legislators.” Click here to read Cerberus’ full statement.

Freedom Group does not sell weapons or ammunition directly to consumers, only to licensed firearms dealers, the company added.

Still, it is clear the controversy may still be influencing Cerberus’ decisions. Last week, Wall Street insiders reported Series Four fund managers may soon allow some investors to sell their stakes in Freedom Group with no penalties.

So far, however, none have — including INPRS.

Debate over whether that should change could begin as lawmakers return to session at the Statehouse in January. provides commenting to allow for constructive discussion on the stories we cover. In order to comment here, you acknowledge you have read and agreed to our Terms of Service. Commenters who violate these terms, including use of vulgar language or racial slurs, will be banned. Please be respectful of the opinions of others and keep the conversation on topic and civil. If you see an inappropriate comment, please flag it for our moderators to review.

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