Cerberus Decision A Wall Street Game Changer?
Cerberus, a private equity and hedge fund that manages more than $20 billion, announced this week it will sell Freedom Group, the maker of the gun used in Friday's Newtown, Conn. tragedy. The move came after one of Cerberus' major investors, the California State Teachers' Retirement System (CalSTRS), inquired about Cerberus' ownership. I suspect this may have also been a personal decision by Cerberus CEO Stephen Feinberg, whose father resides in Newtown.
As one would expect in the wake of such a tragedy, government entities and others applauded the move and there were positive headlines about a private equity firm doing the right thing.
The Cerberus move, to me, marks a new era in the alternative investment space, where reputation matters and institutional investors embrace or reject their investments based not only upon their track record and business success, but also (and in many cases, more importantly) based upon their corporate character and values. We appear to be at a tipping point where we move beyond the days where alternative investors seek to make money at all costs, while operating under the radar.
Alternative investors have certainly been moving in this direction for years. KKR, for example, has one of the most impressive corporate social responsibility programs of any company based in the U.S. But I believe that today's Cerberus move will change the game forever. Its decision to sell Freedom Group, potentially at a loss, will be a case study for reputation management and corporate character for years to come.