Watchdogs & Freedom: Cerberus, Bushmaster & CalSTRS


Plum Island, Mass.: Warm Day Mid-November 11/12/12

          I have long loved the unintended juxtapositions between the names of private equity firms and the companies they own.

           Cerberus Capital Management took its name from Greco-Roman mythology.  ‘Cerberus’, the three-headed dog which kept the shades in Hades, is an apt image for a PE firm, as would be ‘Bane Capital’.

           When Cerberus bought the Archdiocese of Boston’s Caritas Christi (‘love of Christ’) hospitals, it renamed them Steward Health Care System.  I hadn’t thought of the three-headed dog as a steward, but that’s one word for him.

           Stewardship: that’s what the controversy over private equity, leveraged buyouts, and the like is all about.  And, it extends to the PE funds’ investors, too.

           That the founder of Bain Capital could not make a positive social case for PE in either his 1994 Massachusetts Senate campaign or his 2012 Presidential bid was more telling than any of his other failings.  That endowments and pensions remain heavily committed to PE, after 25 years of maximising shareholder value, tells all about their concern for anything other than the bottom line.

           From POLITICO’s Morning Money yesterday:

THE MONEY BEHIND THE GUN BUSINESS – FORTUNE’s Dan Primack: “Do you know who owns more than a 6 percent stake in the maker of .223 Bushmaster rifles, like the one used last Friday to murder 20 first graders and seven adults in Newtown, Conn.? California public schoolteachers. The company in question is Freedom Group, a privately held firearms conglomerate formed by private equity and hedge fund group Cerberus Capital Management. Cerberus created the platform in April 2006 via the acquisition of Bushmaster, after which it added another 10 makers of firearms, ammunition and accessories. …

 “The California State Teachers’ Retirement System (CalSTRS) committed to invest a whopping $500 million into the $7.5 billion Cerberus fund that has bankrolled Freedom Group. That means that it effectively owns a 6.67 percent stake in the gunmaker.”

 UPDATE: CalSTRS say it is reviewing its Cerberus investment in light of the “tragic events” in Newtown.

           Freedom Group: one wonders what it’s free from, given its watchdog.  Perhaps Hades’ habitues have grown so restive Cerberus has abandoned his collar for an assault rifle sling.

           And, what watchdog might there be at CalSTRS?

           Yet another argument, I’d say, for tried and true social screening applied with rigor to every area of a portfolio.