Newtown Gun Backlash Hits Wall Street Via California Mega Funds

Tickers in this article: CAL DKS LO MO PM RGR SWHC WMT

On Tuesday, gun makers Sturm, Ruger (RGR) and Smith & Wesson Ruger (SWHC) fell sharply in the wake of California's statements and Cerberus's decision. Dicks Sporting Goods (DKS) and Wal-Mart (WMT) halted their sale of rifles.

Tuesday's stand may be just the beginning in a purging of gun-related investments by Wall Street's largest investors, which could move faster than any prospective federal ban on assault weapons or prohibition on cartridge sizes. Already, a precedent exists.

CalPERS and CalSTRS were early movers in banning limited partner and stock investments in corporations that did business in South Africa during the apartheid era, and more recently, in tobacco related businesses, according to Bruce G. Willison, a Professor of Management and former Dean of the UCLA Anderson School of Management.

CalSTRS spokesperson Ricardo Duran said in a late Tuesday interview that the fund has weighed social-action based investments since the late 1970's. Economic pressures exerted by U.S. investors and corporations were one of the factors that precipitated the end of apartheid, noted former president F.W. de Klerk.

In the 2000s, the fund and CalPERS decided to divest of assets in the tobacco industry, according to its investment principles. Moves such as a divestiture of tobacco stocks or the prospective disposal of firearm assets -- CalSTRS board will meet in early January to vote on Treasurer Lockyer's recommendation -- don't come lightly, according to Duran.

"There was a great deal of discussion if this was the fiduciary thing do," said Duran, of the decision to divest tobacco assets. As part of that decision both California pension funds coined a "Double Bottom Line" investing style at the behest of Treasurer Phil Angelides, which weighed investment returns along with social policy.

In 2008, CalSTRS developed a set of 21 risk factors to consider in investments that included corruption, a country's adherence to human rights policies and human well being. It's now a "Triple Bottom Line," which includes human the well-being check Duran says would be the key to any firearm divestitures.

"We have been able to maintain that balancing act of fiduciary responsible to our members to what is socially responsible," says Duran, who adds, "I think it is a point of pride."

Still, any prospective retreat from investments in manufacturers of assault rifles won't come lightly. Treasurer Lockyer says he expects dissent among other board members of CalPERS and CalSTRS. As California Attorney General, Lockyer reinstituted an assault weapons ban, enforced NRA-supported gun confiscations from felons and fined Wal-Mart for violating the state's gun laws. Still, he says he'd likely support overall Second Amendment rights and any related investment policy.

Lockyer wasn't able to say how far the state may eventually go, when pressed on whether it could dispose of all firearm assets or national retailers of firearms - such as Cabela's(CAB) -- that don't only abide by California state law.