Cerberus forced to sell off gun maker
SITTING in their offices high above New York's Park Avenue late on Monday, the private equity executives who owned the country's largest gun company received a phone call from one of their most influential investors.
An official at the California teachers' pension fund, which had $US750 million ($713 million) invested with the private equity firm Cerberus Capital Management, was on the line, raising questions about the firm's ownership of the Freedom Group, the gun maker that made the rifle used in the Connecticut school shootings.
Hours later, in the early hours of Tuesday, Cerberus said it was putting Freedom Group up for sale.
"It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level," Cerberus said in a statement.
The move by Cerberus was a rare instance of a Wall Street firm bending to concerns about an investment's societal impact rather than a profit-at-all-costs ethos.
Public pension funds such as the California one - officially, the California State Teachers' Retirement System, or CalSTRS - have hundreds of billions of dollars in private equity and hedge fund investments. While their influence is vast, it is usually exerted behind the scenes and rarely prompts snap business decisions.
While concern from Cerberus's investors - as well as a swirl of media attention - had an impact on the decision to sell, the leadership of the private equity firm debated through the weekend on how to respond to the tragedy and its potential fallout. Cerberus decided to make a clean break and sell the gun company.
"We believe this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so," the firm said in its statement.
Cerberus, a private equity and hedge fund firm that manages more than $US20 billion, is owned by the billionaire financier Stephen Feinberg. His father, Martin Feinberg, lives in Newtown, Connecticut, where the shootings occurred. Bloomberg News quoted the elder Feinberg as saying that the shooting was "devastating" and "horrendous, truly horrendous".
Cerberus said it would retain a financial adviser to sell its interests in Freedom Group and return the sale proceeds to its investors.