PSERS postpones vote on US buyout fund over ESG concerns

Pennsylvania Public School Employees’ Retirement System has decided to postpone its vote to commit to a US buyout fund over environmental, social and governance concerns.

The potential $300 million commitment to Beverly Hills-headquartered Platinum Equity‘s Capital Partners Fund V came under scrutiny after two advocacy groups spoke against the firm’s portfolio company Securus at a board meeting on 23 May.

Securus manages inmate phone systems for multiple state prison systems, including the Pennsylvania Department of Corrections.

“PSERS does not have a social investment policy that prohibits or limits the type of investments the system can enter, but we do follow the state legislation that prohibits investment in Sudan and Iran,” chief investment officer James Grossman said in a statement.

“In addition, we know the cost of Pennsylvania inmates’ calls has fallen since the Department of Corrections hired Securus in 2014 and Platinum Equity has documented how it has improved Securus’ overall national operations since it took ownership,” he added. “However, we thought it was prudent to ask the board to postpone its vote until PSERS’ investment professionals could gather more facts and Platinum officials had a chance to address the Board.”

Platinum Equity declined to comment.

In a letter the firm sent to investors in May, seen by Private Equity International, Platinum Equity clarifies its investment in Securus, noting it is “acutely aware” that some of the portfolio company’s practices could be perceived as “anti-consumer”.

“From an ownership and investment standpoint, Platinum Equity’s fundamental objective is to transform Securus into a market leader that exemplifies best practices on behalf of both customers and consumers,and then to divest the post-transformation business as part of our normal investment lifecycle,” the letter stated.

Click here to view the full letter

The buyout firm is targeting $8 billion for Fund V, according to PEI data. Fund V has a hard-cap of $10 billion and is expected to hold its first close by end of June, according to a source familiar with the fundraise.

PSERS has invested $825 million across four prior Platinum Equity funds, including $125 million to Fund I, $300 million to Fund II, $200 million to Fund III and $300 million to Fund IV.

Platinum Equity executives are expected to attend PSERS’ August board meeting to answer questions related to Securus.

Public pension systems have been under pressure from advocacy groups to dissociate from private prisons. In November, the California State Teachers’ Retirement System pulled its investments from two private prison companies that had contracts to house immigrants detained at the Mexican border.

US public pensions have been urged to review their ties to the prison industry. In February, Randi Weingarten, president of the American Federation of Teachers union, called for such funds to be wary of private equity firms that profit from mass incarceration.

“This is, first and foremost, a humanitarian and civil rights issue – but it is also a financial issue that brings the misaligned incentives of our justice system into stark relief,” Weingarten said in a statement at the time.

“Private prisons and private equity firms that invest in corrections companies are profiting from jailing people – disproportionately people of colour – and are a major contributor to the United States’ world-leading incarceration rate.”

Several private equity firms have invested in Securus, that was formed by HIG Capital by merging other private phone providers for prisons.

Platinum Equity bought Securus from Abry Partners for $1.5 billion in 2017. Abry had acquired it from Castle Harlan for $640 million in 2013, which had in turn acquired Securus from HIG Capital for $440 million in 2011.

–This story was updated to include the size of the proposed commitment to Platinum Equity V, and Platinum Equity’s planned attendance at a PSERS board meeting in August.