Wall Street, Invested in Firearms, Is Unlikely to Push for Reform

As the debate over gun control rages following the horrific tragedy in Newtown, Conn., one unlikely group is expected to play a central role in pushing back against any reform effort: the private equity industry.

It is often overlooked, but some of the biggest gun makers in the nation are owned by private equity funds run by Wall Street titans. The .223 Bushmaster semiautomatic rifle that was used on Friday by Adam Lanza to massacre 20 schoolchildren was manufactured by the Freedom Group, a gun behemoth controlled by Cerberus Capital Management, named after the three-headed dog of Greek myth that guarded the gates of Hades. Its founder, Stephen A. Feinberg, hunts regularly on the weekends with a Remington Model 700.

Besides Cerberus, Colt Defense, a spinoff from the manufacturer of the .44-40 Colt revolver made famous by John Wayne, is jointly owned by Sciens Capital Management, a fund advised by the Blackstone Group and another fund run by Credit Suisse.

On Colt Defense's Web site, it markets weapons for law enforcement and the military, including a 9-millimeter submachine gun that looks like something out of the video game Call of Duty. These are weapons you hope never fall into consumers' hands.

And then there is MidOcean Partners, a private equity firm that once owned the diet company Jenny Craig that now controls Bushnell Outdoor Products. Bushnell makes just about everything for a gun except the gun itself, for both the hunting and “tactical” markets.

Need a laser scope for your semiautomatic handgun? Bushnell makes one called the Tactical Red Dot: First Strike. How about military-grade night-vision goggles? Yep, it has a subsidiary that makes them.

Look ing for a “loader” for your AK-47? It has you covered. Or what about a magazine for bullets? One of its subsidiaries sells the Hot Lips 10-Round Magazine, which is marketed this way: “Put 10 rounds through your 10/22 faster than the blink of an eye, and reload with amazing ease.” (Really, folks. It also makes a 25-round version.)

Perhaps it should not be a surprise, but Wall Street will hardly take a leadership position in the conversation about gun control. The more vocal stances could come from pension funds questioning their investments in gun makers, though they may be loath to take a stand.

Since the killings on Friday, the Freedom Group and other notable gun manufacturers have not commented on the tragedy - not even a basic, “We condemn such violence and pray for the families of Newtown.”

When I called Mr. Feinberg, he declined to comment, as did others. About a year ago, the National Rifle Association issued this statement about Freedom and Cerberus: “The owners and investors involved are strong supporters of the Second Amendment and are avid hunters and shooters.”

Cerberus and other funds with ownership stakes in the gun industry would be in an awkward position if they sought reforms that could hurt their investments. Cerberus invests money in companies like Freedom for other investors, including public pension funds. It has a fiduciary duty to maximize investors' returns.

However, some of its investors may be rethinking their position on investing in companies like Freedom, which was used as an acquisition vehicle to buy up brands including Remington Arms, as well as Bushmaster Firearms and DPMS Firearms, a leading maker of military-style semiautomatics.

The California State Teac hers' Retirement System, which has a stake in Freedom through a $751.4 million investment in Cerberus's funds, said Monday it was reviewing its investment. “At this point our investment branch is examining the Cerberus investment to determine how best to move forward given the tragic events of last Friday in Newtown, Conn.,” the company said in a statement to Reuters.

Private equity firms have a long history of investing in “sin” companies, including guns, alcohol, gambling and tobacco, in part because the companies often are inherently discounted. Kohlberg Kravis Roberts acquired RJR Nabisco in 1988; the R. J. Reynolds Tobacco Company was later spun off.

On Monday, Eliot L. Spitzer, the former governor of New York and the former  New York State attorney general, called on Cerberus's investors to pressure it to try to reform the gun industry.

“While Cerberus, whose array of holdings is vast, is generally immune to public pressure and the opprobrium of trafficking in products that while legal may be marketed in a loathsome way, Cerberus would not be immune to pressure brought by its own investors,” he wrote on Slate.

He added: “Every student at a university should ask the university if it is invested in Cerberus. Every member of a union should ask their pension-fund managers if they are invested. Information is the key first step. From there, action will quickl y follow.”

If Mr. Spitzer is right, the economic impact of such reform may be painful for its investors. About two years ago, when Freedom sought to pursue an I.P.O. (which was later shelved) it identified gun control as one of its biggest “risk factors.”

“The regulation of firearms and ammunition may become more restrictive in the future and any such development might have a material adverse effect on our business, financial condition, results of operations or cash flows,” the company told potential investors. “In addition, regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions.”