Pension board OKs $300 million investment in private equity firm connected to prisons, student debt

By: - August 10, 2019 7:12 am

Despite activist prodding, Pennsylvania’s Public School Employees’ Retirement System board voted Friday to approve a $300 million investment in a private equity fund that’s connected to prisons and student debt collection.

PSERS currently manages more than $50 billion to provide benefits to 200,000 retired school employees.

Decisions on investments are made by a 15-member board that includes state lawmakers, a gubernatorial appointee, the state treasurer, and current and retired employees.

The board voted 12-2 to approve the spending. The “no” votes came from State Treasurer Joe Torsella and a member picked by Gov. Tom Wolf’s Secretary of Education, Pedro Rivera. A designee for the Department of Banking and Securities recused himself.

The group in question is Platinum Equity, a California-based private investment firm started in 1995. 

In 2017, Platinum acquired Securus Technologies, a prison phone services company that has been criticized for the high cost of calls. The previous year, in 2016, the company settled a lawsuit with civil rights activists in Austin for allegedly providing recordings of inmates’ calls to prosecutors. 

Platinum recognized issues within Securus in a letter sent to investors in May, saying a review of the company’s business policies was underway to make sure it “serves not only the best interests of the corrections-facility customers, but balances that where possible against the interest of the incarcerated-inmate consumers.”

The private equity firm also owns Transworld Systems, a student debt collection agency. Transworld and National Collegiate Student Loan Trusts entered into a consent decree with the Consumer Financial Protection Bureau in September 2017 for filing lawsuits over debt they “couldn’t prove was owed or was too old to sue over.” Transworld was ordered to pay a $2.5 million civil money penalty. 

Friday’s day-long meeting was preceded by testimony from three activists from two organizations: Worth Rises, a prison abolition nonprofit, and the Private Equity Stakeholder Project. One activist read a letter from a PSERS beneficiary advocating against the investment, highlighted Transworld and Securus’ regulatory run-ins, and noted growing political opposition to Securus.

Connecticut is advancing a bill to make all prison calls free. New York City has done the same for calls from its Rikers Island jail.

Worth Rises Executive Director Bianca Tylek said Friday that other companies’ phone-call rates are lower than Securus’.

“Of course counties could do better about negotiating contracts, but you could refuse to benefit when they fail,” Tylek said to the pension board.

Torsella told the Capital-Star that the “trail of controversy” following Platinum raised concerns for him about investing in the company again.

“In my fiduciary hat, those things worry me,” Torsella said. “You can also be worried about them as a citizen like ‘This is unsavory,’ but that’s different.”

Over the past 15 years, PSERS has invested more than $1 billion into Platinum, according to system spokesperson Steve Esack. That includes investing in the rounds of funding that let Platinum purchase Securus and Transworld.

Esack said that PSERS has only received 7 percent of its intial investment into Transworld back. Platinum has since divested of most of the student debt collecting agency.

But of the $200 million total invested into Platinum during that round of funding, PSERS still had a net return of 33 percent. Lifetime, Esack said the pension fund has received $1.72 back for every dollar invested in Platinum.

“PSERS Board of Trustees certainly listened and considered the input from the advocacy groups but on balance believed that the new Platinum fund is a good investment,” Esack said in an email.

PSERS has a seat on Platinum’s advisory board, which the system’s board feels “could give us the ability to influence the direction of Platinum and the companies that could become part of the new fund,” Esack said. 

Just as PSERS hopes it can influence the fund, Mark Barnhill, director of investor relations for Platinum, said he hopes the firm’s investments can influence companies.

He disagreed that by profiting off of prisons, Securus and Platinum are part of a problem that activists like Tylek have assailed.

“I can’t agree with that. I can’t buy into that,” Barnhill told the Capital-Star. “This is an industry managed and overseen by the correction agencies themselves and the regulatory and political bodies above them. Those political bodies determine policy, ultimately.”

“That’s their campaign — to influence those political campaigns. It’s not what I do,” he continued. “What we do at Platinum is, in a responsible way, transform companies into market leaders that exhibit the best and most responsible business practices.”

In other jurisdictions, some pension systems are taking action to divest from the prison industry.

According to Bloomberg, New York City’s pension system is considering adding a rider to its investments that would prevent use of funds in companies that provide services to correctional facilities. The city’s pension system already does not invest directly in prisons.

Tylek said Worth Rises will continue to push PSERS board members to negotiate a similar agreement as part of the new investment in Platinum.

A vote on the investment was originally scheduled for May, but was delayed following an earlier round of testimony from activists.

PSERS Chief Investment Officer James H. Grossman said in a statement at the time that “it was prudent to ask the Board to postpone its vote until PSERS’ investment professionals could gather more facts and Platinum officials had a chance to address the Board.”

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Stephen Caruso
Stephen Caruso

Stephen Caruso is a former senior reporter with Pennsylvania Capital-Star. Before working with the Capital-Star he covered Pennsylvania state government for The PLS Reporter.