Business

Investor doubts on gun business

Dina Rudick/Globe Staff

As gun makers took a financial drubbing in the wake of the Newtown, Conn., shootings, Massachusetts Treasurer Steve Grossman directed the state pension fund Tuesday to review its investments in any companies in the firearms industry.

Investors have reacted strongly to the killings this week, battering the stocks of publicly traded gun makers and prompting the private equity firm Cerberus Capital Management on Tuesday to pledge to sell the nation’s largest gun company, maker of the semi-automatic weapon used to kill 20 children and 6 adults at the Sandy Hill Elementary School. Cerberus also controls the Steward Health Care System in Massachusetts.

Also Tuesday, Dick’s Sporting Goods suspended the sale of certain rifles and removed all guns from its store near Newtown.

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Grossman stopped short of calling for divestment in gun companies, saying it was the pension fund’s duty to maximize investment returns for retirees. But, he said, “You can never leave out of that discussion how you are responsive to the values of the people of Massachusetts.”

The pension fund said it has $1.4 million in shares of two publicly traded gun manufacturers, as well as a stake in the gun retailer Academy Sports and Outdoors, through the private equity firm Kohlberg Kravis Roberts & Co.

Pension funds across the country were facing scrutiny from members such as teachers and police officers, worried that they might be building nest eggs on the very problems they fight every day. On Monday, the California teachers’ pension fund upped the pressure on the normally thick-skinned Cerberus when it said it was reconsidering its $500 million in investments at the New York firm.

“It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level,’’ Cerberus said in a statement Tuesday morning. Bloomberg News also reported that the father of Cerberus chief executive Steve Feinberg lives in Newtown.

In the past, mass shootings in this country have barely grazed gun makers; they faced little public pressure once the headlines faded. Now, though, gun companies have so far been unable to escape a backlash from the tragedy in Newtown last week, in which a 20-year-old gunman, Adam Lanza, shot and killed 27 people, including 20 first-graders trapped in their classroom.

The rampage has prompted a growing number of federal lawmakers who are normally against gun control to change their stance.

The National Rifle Association broke its silence late Tuesday, saying it was “made up of four million moms and dads, sons and daughters — and we were shocked, saddened, and heartbroken by the news of the horrific and senseless murders in Newtown.” The lobbying group said it had refrained from commenting so far out of respect for the families of the victims, and said it would hold a news conference Friday.

The NRA is “prepared to offer meaningful contributions to help make sure this never happens again,” said the group, the nation’s largest and most vocal opponent of gun-control laws.

Even mainstream mutual funds, such as Vanguard Group Inc., felt compelled to respond to the outcry. It is the largest stockholder in Springfield gun maker Smith & Wesson Holding Corp. and a top owner of Sturm Ruger & Co., a gun company in Southport, Conn. — the same stocks the state owns.

“Vanguard is deeply saddened by the tragedy in Connecticut and can understand concerns about firearm safety and access,’’ the Valley Forge, Pa., investment firm that is a mainstay of American retirement funds said in a statement.

Vanguard said the stocks of those gun makers are mainly held in passively managed index funds, which buy all the stocks on a given listing, such as the Russell 2500, as well as in a few actively managed funds. But the firm said it was not prepared to stop buying gun stocks.

“We believe that mutual funds are not optimal agents to address social change,’’ Vanguard spokeswoman Linda Wolohan said in the statement.

Smith & Wesson shares have fallen 20 percent since Friday, closing at $7.79 Tuesday. Elizabeth Sharp, vice president of investor relations for the gun maker, said in an e-mail, “Our hearts go out to those impacted by this terrible tragedy. We feel that further comment would be inappropriate.”

Meanwhile, the $50 billion Massachusetts public employee pension fund has relatively small holdings in the publicly traded weapons companies, and its ownership share of privately held Academy Sports was not immediately available Tuesday. The state has $75 million invested in the fund that Kohlberg Kravis used to buy the Katy, Texas-based retailer in 2011.

In Massachusetts, the state Legislature has the responsibility of determining which investments at the pension fund should be banned. Lawmakers had previously required the pension fund to divest from companies that do business in Iran, Sudan, and in the tobacco industry, and there are restrictions on companies doing business in South Africa and Northern Ireland that are engaged in the production or sale of firearms and ammunition.

Generally these changes have come after a public hue and cry.

“There is a tipping point,’’ said Michael Schlachter, a managing director of Wilshire Associates, a Santa Monica, Calif.-based investment consulting firm. “Whether or not this was one, remains to be seen,’’ he said of the Newtown slayings.

Harvard University’s endowment, a major institutional investor with $31 billion under management, declined to comment on gun investments.

But Stanley Eleff, a member of a Harvard alumni group that is often critical of the university’s endowment management, said in an e-mail, “Surely assault weapons and those who make them for anything other than military use is not something from which Harvard should profit.”

There will likely be continuing fallout for gun retailers and makers in the coming weeks. Cerberus’s gun company, the Freedom Group, counts Walmart as its largest distributor, responsible for 15 percent of its net sales in 2011, according to Freedom’s annual report.

Freedom said it has “strong relationships” with a number of other stores as well, including Dick’s Sporting Goods and Academy Sports.

Walmart and Academy did not respond to requests for comment Tuesday. KKR declined to comment.

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