How owner of rifle company tied to shootings decided to sell

cerberus.jpgTurns out that the top man at private equity firm Cerberus Capital Management looked at Freedom Group, one of the nation's biggest makers of guns and ammunition, as more than an investment. Stephen Feinberg, Cerberus's co-founder and CEO, is an avid hunter and believed that the public should be able to buy guns, presumably including the Bushmaster rifle that was used in the Connecticut shooting. But Cerberus has been under pressure to sell Freedom Group. From the WSJ:

While Cerberus executives felt devastated over the Connecticut tragedy, they also believe that Freedom Group plays an important role in supplying law enforcement and military personnel, the person said. In the end, the group decided that attempting to sell Freedom Group "was in the best interests of investors," the person said. In a statement just before 1 a.m. Tuesday, Cerberus said a sale would allow it to "meet our obligations...without being drawn into the national debate." As of Tuesday morning, Cerberus hadn't hired a bank to manage the sale. The Freedom Group directors weren't surprised by the move, seeing it as prudent for Cerberus to distance itself amid the charged political atmosphere arising from Friday's shooting, said one person familiar with the matter. There were no discussions related to the company's financial prospects should Washington get tougher on gun rights, the person said.

Worth noting is that Freedom Group wasn't all that great an investment. The gun maker has posted losses in four of the five full years since being formed in 2007. Matter of fact, Cerberus has taken its public lumps on other fronts, such as when it bought Chrysler:

The Chrysler purchase drew unwanted attention to Cerberus. The deal garnered even more scrutiny when Chrysler stood on the brink of liquidation and had to be bailed out by U.S taxpayers in 2008. Another Cerberus investment, the auto-lending company GMAC LLC, also required a taxpayer bailout. The investments saddled Cerberus with billions in losses and Mr. Feinberg apologized to investors looking to pull money from the firm in summer 2009 for the attention they drew. In a letter, he told investors "we will seek to avoid transactions that receive the publicity that some of our more recent investments attracted. We never intended to receive the publicity surrounding those investments."

All of which raises another question: Why did the California State Teachers' Retirement System invest $751.4 million in Cerberus? KPCC's Matt DeBord explains how it works:

CalSTRS, with $154.8 billion under management, establishes annual return targets for its investments. CalSTRS currently expects 7.75 percent, a daunting goal at a time of stock market volatility and extremely low interest rates on bonds. This has compelled pension fund managers to make riskier investments. CalSTRS and CalPERS have "alternative" investments in their massive portfolios. Private equity and venture capital make up large chunks of these investments and funds like CalSTRS are anything but comfortable about transparently revealing the nature of the what kinds of companies its alternative portfolio is exposed to, as CalSTRS current disclosure policy demonstrates.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
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