In a world filled with troubles, few issues have managed to unite people of conscience on both sides in near universal outrage as has the sight of a father and daughter drowning while trying to reach asylum in the United States. Or the image of children put into wire cages in what aspires to be the best country on earth. Or the knowledge that if you visit a loved one in an immigrant prison you are forbidden from hugging them. Or that there are reports that as many as 4,500 of the children placed in our care have been sexually abused by their captors – our own employees. And now the fact that these people are being denied clean water, a place to sleep, soap, a toothbrush, and food.
Chances are, if you’ve got a pension, or invest in almost any mutual or hedge fund in the country, you’re both helping to finance and profiting from kids in cages. While many of us across the entire political spectrum are outraged by the treatment of asylum seekers that we’ve seen and read about, what we haven’t known is how we ourselves are making this abuse possible.
This report takes a look at Core Civic, the largest owner of private prisons in the country, and which investors have decided that’s a business model they like.
The two largest owners of private prisons in the country are CoreCivic and the Geo Group. There are a number of additional private prison owners that are not public, including Management and Training Corp., LaSalle Southwest Corrections, and Community Education Centers, among others.
Let’s take a look at CoreCivic since it’s the largest. CoreCivic owns or manages more than 100 correctional and detention facilities. Many of those facilities are under contract with various state and local governments as correctional facilities, and many are under contract with ICE as detention facilities. According to the company’s most recently filed 10K, ICE facilities managed by CoreCivic include the Eloy Detention Center in Eloy, AZ; the Otay Mesa Detention Center in San Diego; the Stewart Detention Center in Lumpkin, GA; the Elizabeth Detention Center in Elizabeth, NJ; the Houston Processing Center; the Laredo Processing Center; the T. Don Hutto Residential Center in Taylor, TX; the Webb County Detention Center in Laredo; and finally the South Texas Family Residential Center in Dilley, TX; among several others.
CoreCivic is public, and thus has publicly traded stock and public investors. The largest investors in public companies are required to file disclosure statements with the Securities and Exchange Commission (SEC). That’s our primary source. According to documents filed with the SEC, almost every major mutual fund, hedge fund and, unbelievably, the largest public pension funds in the country all own stock in CoreCivic, and they’re buying more. In fact, an astounding 80% of CoreCivic’s shares are owned by roughly 260 of the largest, most respected institutional investors in the country, including many that have adopted standards that prohibit investing in companies that benefit from the tragedy of others through the use of Environment, Social and Corporate Governance (ESG) standards.
Let’s look at one of CoreCivic’s facilities. The South Texas Family Residential Center, owned by CoreCivic, was, according to the Washington Post, the beneficiary of an unusual agreement signed with then President Obama’s administration that totaled roughly $1 billion over a four year period, was awarded on a no-bid basis, and pays CoreCivic a minimum of $20 million per month no matter how few people are housed in the facility. Following the award of this contract to CoreCivic, then Deputy Attorney General Sally Yates reversed course in August of 2016 and said that the justice department would phase out the use of private prisons completely, sending the stocks of publicly traded private prison operators into a tailspin. This policy was reversed again in February of 2017 by the new Trump-appointed Attorney General Jeff Sessions, who rescinded the previous memo and opened the floodgates for private prison operators.
Here is what reporter and immigration attorney Martin Garbus had to say about his visit to the South Texas Family Residential Center, run by CoreCivic, in an article in The Nation in March of this year: “The center is actually a prison-an internment camp.” “Nearly every one of the almost 500 people that I saw in the detention center was sick.” “Bathroom breaks are frequently not granted, or not in time, so both women and children often soil themselves.” “They went to the “perrera,” or “doghouse,” a place where families were put in cages, cyclone fencing between them as though they were animals.” “She told me in an offhand way that her other younger son had drowned 10 days ago, as they were coming over the river. She repressed all but one tear. Her son was impassive.”
Let’s take a closer look at who’s decided to invest in CoreCivic, the owner of this immigrant prison. The largest owner of stock in CoreCivic is the Vanguard Group owning 17.6 million shares, or 14.8% of the company and valued at a staggering $393 million. Vanguard offers 129 different funds, everything from bond funds to stock funds to emerging market funds and real estate funds. Their real estate fund is called Real Estate Index Admiral Shares. It owns 5.8 million of Vanguard’s 17.6 million shares. The largest holding in the fund is something called Vanguard Real Estate II Index Fund Institutional Plus Shares, where the minimum investment is $100 million. That fund owns another 720k shares. Investors in funds are not required to disclose the indirect ownership interest in companies owned by the fund, allowing them to cloak their investments held in this manner so it is nearly impossible to trace who indirectly owns Core Civic through their ownership interest in Vanguard (or any other company’s) sponsored funds.
The second largest owner of CoreCivic is Blackrock, with 14.6 million shares. Blackrock is also a mutual fund manager, although they offer a variety of other institutional investment vehicles. It’s worth noting that Blackrock, the second largest owner of CoreCivic, is also the investment manager for both the “C Fund” and the “S Fund”, the only two domestic stock fund options for Federal employees in their own retirement plans, meaning all of the members of the US House of Representatives, the Senate, and the President’s administration. Therefore, all of the elected members of the government protesting the private prisons are also directly sponsoring those very same private prisons. In third place is Fidelity with 4.6 million shares, followed by State Street, Prudential, and Renaissance Technologies (a hedge fund formerly known for its affiliation with Republican operative Robert Mercer and now run by Peter Brown). Rounding out the top ownership in Core Civic are Bank of New York Mellon, Northern Trust, Geode Capital, New South Capital, Vaughan Nelson, Ameriprise Financial, Capital Growth Management, LSV Asset Management, and Wells Fargo.
In addition to all of the many mutual and hedge funds with ownership positions, there are a great number of pension plans for public employees that also own stock in Core Civic, including the largest pension funds in the country, with millions of beneficiaries. The Public Employees Retirement System of Ohio (OPERS) owns more stock in CoreCivic than any other public pension plan in the country, with 257k shares directly owned. They are closely followed by New York State Teachers with 251K, TIAA CREF with 233K, CalPERS with 228K, Ohio State Teachers Retirement System with 187K, and the Retirement System of Alabama with 154K, among many others including pension plans in Arizona, Alaska, Utah, Louisiana, New Mexico, Michigan, Kentucky, Colorado, Pennsylvania, and New Jersey.
Of these let’s take a look at CalPERS, the single largest pension fund in the entire country – the bellweather for socially responsible investing – with more than $370 billion under management. CalPERS discloses on its “List of Memberships and Endorsements Supported by CalPERS” that it ascribes to the Global Sullivan Principles. These principles, initially used to screen companies engaged in business in South Africa, state in part that one of the seven requirements for corporations is “working to eliminate laws and customs that impede social, economic, and political justice”. Further, CalPERS indicates it invests according to the UN Global Compact Principles that state in part “Businesses should support and respect the protection of internationally proclaimed human rights and make sure they are not complicit in human rights abuses.”
It’s also worth some time to take a look at the Public Employees Retirement System of Ohio. Of all of the public pension funds filing 13f filings with the SEC during the first quarter of this year, OPERS added more to its position that any other public pension fund in the country, increasing its ownership by 22%. The other public pension plans that purchased more stock during the first quarter included those in Alabama, Arizona, the Texas Permanent Schools Fund, and Oregon, among others.
Many of the investors mentioned above are certain to say that they only own CoreCivic in funds meant to mimic the performance of the entire real estate investment trust industry, of which CoreCivic is a part, or “index investing” in industry parlance, as though that somehow absolves the investors of any type of investment determination of the company on its own merits. If one were so inclined, you could give them that benefit of the doubt. That same benefit, however, shouldn’t extend either to direct investors that purchase the stock (except in the highly unlikely scenario they’re trying to create their own index), or to those investors that have purchased the stock in proportions above the weight of Core Civic to the overall industry of which it’s a member.
One final note, both CoreCivic and the Geo Group are structured as real estate investment trusts, or REITS. This means that in exchange for following a complex series of operational and legal structuring parameters, they are provided with a tax exemption from the US government, meaning that the private prison business is also largely a tax-free one. According to the company’s most recently filed 10-K, on revenues of $1.8 billion, it incurred a tax liability of just $8.3 million.
In March of this year, activists with a number of groups including Make the Road New York, the Center for Popular Democracy, the National Prison Divestment Campaign, and the Corporate Backers of Hate Campaign came together and successfully forced JP Morgan Chase, which until that point had been a major lender to the private prison industry, to agree to stop financing the sector. This was accomplished through a number of very high profile protests that took place in front of Chase CEO Jamie Dimon’s home on the Upper East Side of New York and at shareholder meetings. This week Bank of America also announced that it would end the financing of the private prison industry. However, these statements have thus far focused on lending relationships, and not on equity investing, both of which are critical to funding a company’s operations.
People on both the right and the left have been outraged by the conditions under which immigrants are being held in our country’s private prisons. Many people have looked to the Trump administration, ascribing the border crisis to policies that have led to the separation of families, and blaming his administration for the deplorable conditions under which asylum seekers are being held. However, it was the Obama administration that first put in place the agreement that led, at least in this instance, to the South Texas Family Detention Center. Nothing is ever as clear as it seems on the surface. What is clear is that the introduction of a profit motivation into our country’s criminal justice and immigration systems is an inherently flawed moral construct, inevitably leading to abuse. As with everything in our democracy, the power to correct these flaws sits squarely on the shoulders of We the People, provided we have the fortitude to follow the lead set by those brave activists who were able to affect change with JP Morgan Chase.
Disclaimers:
It is noted that CoreCivic states on its website under a tab marked “Setting the Record Straight”: “CoreCivic partners with Immigration and Customs Enforcement to provide safe environments where detainees can reside as they go through their legal due process in the United States. Unfortunately, there is a lot of misinformation about our company and immigrant detention. CoreCivic never has and never will house unaccompanied minors(bold added by company). Children are educated and never separated, balanced meals are planned by dieticians, and comprehensive medical and dental care is readily available.”
It is further noted that the infamous photos of “kids in cages” have been taken at a number of private prisons, but not at those run by CoreCivic.
Kevin Comer is the author of this report. He began his career as a portfolio manager with the Public Employees Retirement System of Ohio in their investment management division, the same pension fund mentioned in this report. He was employed at OPERS from 1990 to 1993. He also was a Managing Director at Deutsche Bank Alex Brown with responsibility for coverage of the real estate investment trust sector. At the time of his employment with Deutsche Bank, he had declined to provide coverage on behalf of Deutsche Bank of the private prison sector. He was employed at Deutsche Bank and its predecessors from 1995 to 2000.
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