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Los Angeles pension's gun plan shoots blanks

March 29, 2013: 12:13 PM ET

121107045227-election-guns-gallery-horizontalLACERS excludes private equity from possible firearms investment policy.

FORTUNE -- The Los Angeles City Employees' Retirement System's board this week recommended that its staff draft a firearms investment policy, following divestiture requests from a city councilwoman and Mayor Villaraigosa.

But it specifically excluded private equity investments from the potential policy, arguing that such requirements could cause LACERS to be banned from certain private equity funds (as first spotted by Bloomberg). The board even views side letter requirements – where LACERS simply could abstain from capital calls on firearm investments -- as too risky.

What a load of mephitic garbage.

For starters, very few private equity firms back firearms manufacturers in the first place (retailers are another matter, but the board didn't discuss those). In fact, there isn't a single one among the 82 private equity managers within the LACERS portfolio as of its most recent annual report.

Second, private equity firms sign side letters all the time. For example, many Middle Eastern sovereign wealth funds require that their private equity investments be Shariah compliant (i.e., no alcohol, pork, etc). Some municipal funds even still insist on side letters related to Northern Ireland. Moreover, a consultant hired by LACERS wrote of side letters:

"The request generally receives a more favorable reception from the GP when several key LP investors are making a similar request or when the side letter requirement is based on investment policy or applicable law."

Well, we already know that both CalSTRS and CalPERS plan to make similar requests. And those are two of the world's largest private equity funding sources. And that bit about investment policy could be taken care of by, you know, making such side letters part of LACERS investment policy. It would be like parents telling their children: "We would really like to let you stay up late, but unfortunately there's an 8pm bed-time policy in this house."

Finally, these sorts of divestiture policies are largely symbolic. After all, LACERS has just $51,670 in direct exposure to gun manufacturers. Or, put another way, around 0.00008% of Smith & Wesson's (SWHC) current market cap. But if you do want them to have impact, it's more likely within a private equity fund where you're a 5% or 10% stakeholder (on the off chance the fund gets a firearm investment opportunity of interest).

So come on LACERS. Make a statement, but don't make one with more holes in it than a shooting-range target. Or else spend your time on something more productive.

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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