America's Largest Pension Fund, CalPERS, Is Cutting Ties with Private Prisons

Following on the heels of other U.S. pension fund giants, the California Public Employees’ Retirement System has sold its stake in two controversial private prison operators that have recently been in the headlines for their treatment of immigrants.

CalPERS, the nation’s largest pension fund, confirmed to Fortune that it had sold off its stakes in for-profit private detention companies CoreCivic and Geo Group. Both companies closed higher on Monday, but shares in the two prison operators are trading more than 35% below their 52-week highs.

CalPERS emphasized the divestment was not a turn against the industry as a whole, but as part of Chief Investment Officer Ben Meng’s goal to reduce risk and reach a 7% annual return. CalPERS conducted a review that narrowed the scope of its investments “based on factors such as materiality, liquidity, geography, and governance rights” and both CoreCivic and GeoGroup were part of some 217 companies that did not make the cut. The value of the stake was roughly $8.86 million at the time.

“CalPERS does not own shares of CoreCivic or GeoGroup anymore,” a company representative wrote in an email Monday, summing up the move as “an investment decision.”

The share sale comes after other U.S. pension funds have divested from private prisons following reports raising concerns about the treatment of immigrants in private facilities after President Trump dramatically stepped up detention of undocumented individuals crossing the southern border with Mexico. The others include the California State Teachers’ Retirement System, the New York state pension plan, and the Philadelphia Board of Pensions and Retirements. Wall Street banks too have issued promises to no longer finance private prison operators.

Activists that have been pressuring CalPERS for months to divest, arguing that CoreCivic and GEO Group are “engaged in human rights abuses” and place migrant workers and children in “life-threatening conditions.” CalPERS downplayed the impact of such reports on its decision to sell off the two stakes.

These activists and some public employees enrolled in CalPERS, cheered.

“Our union was not going to stand by and watch our pension dollars support these terrible corporations, and we’re pleased to see that CalPERS’ investment analysts have come to the conclusion,” Margarita Berta-Ávila, a professor at California State University who relies on CalPERS for her retirement and associate vice president of the California Faculty Association said in a statement. CFA, which represents some 28,000 workers of the California State University system, has been a part of a multi-month long-campaign calling for CalPERS to divest of its private prison interests.

Berta-Ávila was deeply disturbed after discovering that her pension manager was invested in private prisons at a time when many university students across the state are immigrants or have family members that may have experienced dealing with U.S. Border Control.

“I got very upset… because I realized I was complicit,” Berta-Ávila said. “How can we look at our students face-to-face knowing that this is how our pensions are being utilized? That was not something we wanted to be a part of and perpetuate.”

Similarly, Democratic California Assemblymember Rob Bonta, who penned a recently ratified bill to ban for-profit private detention facilities in the state, also dubbed it a “good change.”

“It’s right for our largest pension funds to divest from them. It doesn’t matter how, It’s a matter of we should. We need to make value-based investments,” Bonta said. Bonta previously authored a bill that would have forced CalPERS to divest of its private prison investments. Now, he added, its time to make sure such pension funds follow through with their promises.

Though CalPERS is among the world’s largest sovereign wealth funds, its investment in GeoGroup and CoreCivic comes out to a blip in comparison to the two companies’ combined market cap of nearly $4 billion. Instead, it is index funds and mutual funds, which are its largest stakeholders. Vanguard and BlackRock, for example, top the list of investors for both companies. Such funds, however, have generally defended their positions in these companies, saying index funds track the market as a whole.

“Over the years, mutual funds have been called upon to take actions against a wide range of companies,” a Vanguard representative said in a statement. “We believe it would be exceedingly difficult to manage our funds effectively and efficiently while seeking to address the many social, political, and environmental concerns of our 20 million clients and the broader global community.”

And though CalPERS is not positioning the divestment as a political or moral statement, activists are optimistic that CalPERS decision to sell its stake in the two companies—however small—could be a rallying cry to other pension funds to follow suit.

“The fact that we have one of the largest and most influential institutional investors recognizing these companies’ bad corporate conduct poses a material risk—it’s a decision expected to be passed on and considered by other pensions in the U.S. and inform their moves,” said Emily Claire Goldman, founder and director of Educators for Migrant Justice, a group that also advocated for CalPERS to drop its stakes in private prisons.