Public pension funds may have racked up over a trillion dollars in unfunded liabilities, but their ability to muscle private equity around may be stronger than ever.
Last week, the California State Teachers Retirement System (CalSTRS), which has $751.4 million invested in Cerberus, jawboned the private equity giant into selling its holdings in the company that manufactures one of the weapons used in the Newtown, Connecticut massacre.
Some private equity experts say the development may signal a shift in the influence and power union pension funds wield. "I don’t think it’s a one-off," one senior private equity executive told New York Magazine. "Something has been brewing for a while."
With CalSTRS successfully bending Cerberus to its political will, the question is whether other public pensions will use their leverage to threaten private equity firms into heeding their political positions. Indeed, part of CalSTRS’s power may be explained by the fact that its 2011 portfolio totaled $155.51 billion. What’s more, the father of Cerberus CEO Stephen Feinberg lives in Newtown, which may also have influenced the firm to sell its holdings in Freedom Group, the maker of the Bushmaster semiautomatic rifle.
Still, says Michael Schlachter of pension fund consultants Wilshire Associates, “If a pension is 10 or 20 percent of a fund, and they’re vocal, that has power. At the end of the day, you are the client."