NYC Pensions Invest in Buyout Funds Union Says Profit From Jails

(Bloomberg) -- New York City’s pensions have invested $1 billion in private equity firms that the second largest U.S. teachers’ union says profit from mass incarceration, including a buyout fund that owns the phone provider to the city’s jails, despite the retirement system’s push to avoid prison-related businesses.

The pensions have invested in Platinum Equity, LLC and American Securities LLC, owners of Securus Technologies, Inc. and Global Tel*Link Corp., respectively, according to a review of city investments. The companies dominate the market for phone and video visitation services to prisons and have been sued by inmates and their families for charging exorbitant fees. Securus provides phone service to New York City’s 8,000 inmates. The pensions also invest in Apax Partners, which bought 3M’s electronic monitoring business Attenti in 2017.

The holdings illustrate how pensions’ investments in private equity firms, whose various partnerships typically hold several companies, can conflict with mandates to pull taxpayer money away from certain industries, such as tobacco or fossil fuels, seen at odds with the public good. For such reasons, New York City’s pensions in 2017 sold $48 million of stocks and bonds from the prison companies GEO Group, Inc, CoreCivic, Inc. and G4S Plc.

On Tuesday, the American Federation of Teachers released a report with a "watch list" of seven private equity firms invested in areas such as privatized prison health care, commissary services and bail bonds. The union said pensions should avoid buyout investments in prison service providers or push managers to sell them because of the financial and legal risks the companies pose.

“The more people you have incarcerated, the more you profit. The incentives are misaligned," said AFT president Randi Weingarten in a telephone interview. “You have tremendous bi-partisan support for limiting the number of people who are incarcerated. That makes it an investment risk."

Drawn Scrutiny

The U.S. criminal justice system has drawn scrutiny for having the world’s highest prison rate and a disproportionate jailing of African-Americans. In the State of the Union, President Donald Trump touted the First Step Act, legislation that reforms harsh federal sentencing laws and gives judges more discretion in sentencing.

Private prisons, especially, have drawn fire for alleged inmate abuses and for having incentives to keep jails full, cut costs, or both.

In August, New York Mayor Bill de Blasio signed a law making prison phone calls free following pressure about the high prices being charged by Securus. The city collected $5 million from inmate calls and Securus made $3 million, according to the Correction Accountability Project, which advocated for the free calls. Starting in May, the city will pay Securus $2.75 million directly for service through March, according to the Department of Corrections.

John Adler, the director of the mayor’s office of pensions and investments, said he would consult with pension trustees to determine a course of action regarding the private equity holdings.

Tian Weinberg, a spokeswoman for city Comptroller Scott Stringer, said the office will “engage" the fund managers. The comptroller acts as investment adviser to the pensions and has a representative on their boards.

Online Visitation

Prison contractors often provide subpar services at high costs, draining money from low-income and minority communities, according to AFT. Securus and other prison telecom providers, for example, have pushed for online video visits, which can cost users more than $1 a minute, as an alternative to in-person visitation. A lawsuit in Massachusetts alleged Securus passed on the costs of commissions paid to a county sheriff by jacking up phone charges.

The AFT’s report is inaccurate and misleading, said Joanna Acocella, vice president of corporate affairs for Dallas-based Securus.

“Securus is proud of offering technologies that keep incarcerated individuals connected with family and friends, and providing free educational services that prepare them for success after release," she wrote in an email. “We’d be happy to meet with the AFT."

Mark Barnhill, a spokesman for Los Angeles-based Platinum Equity, which owns Securus, said transparency and dialog are vital to relationships with investors.

“While we may not agree with all of the AFT’s conclusions, we wholeheartedly support the fundamental recommendation that pension fund trustees raise any concerns about these issues directly with the private equity managers they invest with," Barnhill in an email.

Randy Brown, a spokesman for Global*Tel Link, declined to comment, as did Amy Harsch, a spokeswoman for American Securities, which owns the company.

Todd Fogarty, a spokesman for London-based Apax Partners, which owns Attenti, said it was unclear why the company was included in the teacher union’s report since the ankle bracelets and other monitoring services it provides enable individuals under probation to stay out of prison.

“This is part of the solution to the issues the group has raised, rather than part of the problem," Fogarty wrote in an email.

©2019 Bloomberg L.P.