Why Nobody Will Talk About The Ethics Of Investing In Prisons
Bill Miller was very open about adding exposure but ESG analysts remain oddly quiet on the topic.
announced in June that he and his son had reopened a position in The GEO Group as they sought to recover the performance of their flagship equity income fund.
The GEO Groups name does not really expose its core competence running private prisons. This is an industry which first came to prominence in the 1980s and is now subject to billions of dollars of central government contracts and run 75% of US detention facilities.
In an investment note, entitled Locking up margins of safety penned by , the value investors sought to distance themselves from any ethical consideration around investing in a private prison operator, which he had originally sold out of in 2016.
It is important to realise we are not making any ethical value judgements about the relative efficacy of private prisons. The bet is that the assets and contracts associated with GEO are worth substantially more than where the stock currently trades, he said.
However, the topic of prisons is hard to ignore as a potentially thorny ethical issue. On one hand, fund managers and investors can view them as viable real estate investments with tangible occupancy rates and pent-up demand.
Miller IV said The GEO Group a 5.5% position in the fund is effectively a landlord, which had investment-grade tenants, meaning a near 100% occupancy rate, and were considerably better run than their public sector equivalents.
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Concerned that you wont make money? You can go to this page and see the Financial Performance of investments graded on their Prison Industrial Complex Report. This includes 1-, 3-, 5-, 10-, 15- and 20-year investment performance results, where available. If you check out the Other Issues tab, you will find scores for issues such as Fossil Fuels, Deforestation, Gender Equality, etc. Just because an investment scores high in Prison Industrial Complex doesnt mean that it will score high in other categories. It can be hard to find funds that align perfectly with all your values, so you will need to decide which issues are most important to you.
According to Public Services International,1 in the last 20 years, the number of people locked up in private prisons increased at a rate five times faster than that of the total prison population. One has to wonder why. Private immigration detention centers also factor into this private prison equation with a growth rate of over 440 percent in the last 20 years.
Part of private prisons profits come from exploiting prison workers. Inmates work for pennies per hour. Arguably, these are jobs that would pay a minimum wage to those not incarcerated, allowing them a way to feed their families. Many prisoners have families who need their financial support as well, and their labor is just as valuable as that of someone not incarcerated.
Extracting your support from the prison industrial complex
Banks Change Policy An Important First Step
In response to organized campaigns, public outcry, and banks own risk assessments, more financial institutions are stopping new investment in for-profit private prisons. All banks that have committed to this have also agreed to fulfill their current contracts, some of which wont expire until 2024 or 2025.
Its hard to describe this in terms of divestment because what the banks have said is that they will no longer extend credit, says Nadira Narine, senior program director at the Interfaith Center for Corporate Responsibility .On the asset management side, all of these companies still invest their clients in GEO Group and CoreCivic, so in terms of equities theyre still very much invested.
The private prison sector is already feeling the impact of the eight banks decision to stop issuing future loans. In October 2019, TruthOut reported that GEO Group had officially run out of banks to borrow from, representing an 87 percent drop in funding.
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Regardless Of Recent Negative Attacks The Business Is Performing Quite Well
CoreCivic has performed well through the first half of the year – regardless of the political attacks it has taken on the campaign trails.
Here is a look at their earnings results as of Q2 2019.
As you can see, the company recorded a stellar second quarter this year with 9% revenue growth and 18% adjusted EBITDA growth. Both figures came in above guidance.
In addition, the company increased their guidance: Normalized FFO per share in the range of $2.58 to $2.62, an increase to the previous guidance by $0.10 per share at the midpoint. The increase represents roughly a 13% increase over 2018 normalized FFO of $2.31.
These are all positive signs of a company performing very well. The performance thus far combined with the pipeline of contracts they expect for the remainder of the year bodes well for the company moving forward into 2020.
The Need For Private Prisons Is Quite Clear
As a history lesson, the United States has the highest incarnation rate of any developed nation and according to the Bureau of Justice Statistics, the U.S. sends roughly 754 per 100,000 people to jail every year. In regards to private prisons, between 2000 and 2016, the number of people housed in private prisons in the United States increased by 47% compared with an overall rise in the prison population of 9%, according to an analysis from the Sentencing Project.
The U.S. only represents about 5% of the total global population, but to put it into context how high the US incarceration population is, our inmate population is about 25% of all those incarcerated globally. We are seeing prisons reaching max capacity or more with state prisons currently have a roughly 96% occupancy rate, while federal prisons are at 140% of capacity, which leads to opportunity for the likes of CoreCivic and GEO.
This leads us into looking at recent results. Negative headline grabbers from banks and politicians tells a tale of the end of the road for private prisons, however, current results compared with history paints a much different picture.
The big what-if investors ask themselves is if Trump is not re-elected in 2020. Over the course of the last 15-20 years, the ICE budget has NEVER decreased. Could this change? Absolutely, but the Obama Administration never decreased their budget, though they talked about it.
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Companies Profit From Prison & Detention Centers
Private prisons hold roughly nine percent of the US incarcerated population, but almost three quarters of people detained by ICE are held in privately funded facilities. Of those, most are run by CoreCivic and GEO Group, showing the companies dominance in the private prison sector and their relianceon tough immigration policies.
In memos to their shareholders, both companies acknowledge that policies with the potential to reduce the US detainee population constitute potential risk factors to their business model, according to an August 2019 report from the Center for American Progress.
Over the last 5 years, the American Friends Service Committee has been putting together a map of the prison industry as a whole, which is not just the companies that operate private prisons but all of the companies that profit from mass incarceration, says Dalit Baum, director of economic activism at the AFSC. Despite the fact that the majority of US prisons are publicly run, the entire system is deeply privatized, from bail bonds, to telecoms, to food services.
The AFSC built a free online divestment platform called Investigate, which allows people to scan their investments for companies with ties to the mass incarceration and detention industries, and take action. You can find it online.
Why Would A Private Prison Need To Be Publicly Traded
As a business grows it can make the choice to go public. Essentially, this does a few things for the company that it cant do as a privately held business.
With most businesses, exposure is the key to growth. The more people that know about the company, the more sales they can do. However, with a private prison, exposure isnt something they really need. Instead, they need capital boosts for two other reasons.
If a private prison can mark up the cost of caring for an incarcerated individual by $50 per day, that means their prison can theoretically earn $50,000 per day on a prison that houses 1,000 inmates. If they can land another contract with the government to build a prison in the neighboring state, they could start earning an additional $50,000 per day by maxing out that prison. By going public, they can see a sudden influx of money that would allow them to build that second prison.
Still, there is another reason to go public for a private prison. In order to stay in business, these prisons need a constant stream of inmates coming in to replace those that have served their sentence. This means that laws have to be enforced, contracts renewed, and in some cases, laws more strictly enforced. Corporations may lobby lawmakers for their support or otherwise advocate for stronger enforcement of laws.
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A Slow Motion Version Of The Death Penalty: Why Harvard Shouldnt Invest In Prisons
In early 1971, Terrell Don Hutto was the warden on a cotton plantation the size of Manhattan. About a decade later, hed use lessons learned on the plantation to create something new, crude, and often in Harvards portfolio the worlds first corporate prison.
Hutto began his career in incarceration on the Ramsey Prison Farm in the 60s.
In many ways, Ramsey was a typical Southern prison. After slaverys abolition, former Confederate states realized the 13th Amendment handed them a path forward. Neither slavery nor involuntary servitude would exist in the U.S., it declared, except as a punishment for crime. So states with economies bruised by emancipation eyed prison labor as new fuel for the old slave economy. They purchased plantations, attached them to prisons, and began filling them with Black men many for crimes, like selling crops without a white persons permission, invented to incarcerate them.
When Hutto ran Ramsey, every Black person it imprisoned was forced to work the cotton plantation, plus a fraction of the prisons few white prisoners. Dusk to dawn, they picked cotton across sprawling fields. None were paid. Slow hands in the field often meant solitary confinement or being fed a punishment diet, which one man testified he lost 30 pounds on. Academics flocked to Texas to document the old slave songs, reaching back to West Africa, that rang out on its prison plantations.
Luckily, this history didnt shake investors.
Private Prisons And Divestment: Issues And Alternative Approaches
In an Opinion article published in The New York Times entitled More Cities and States Should Divest From Private Prisons, Scott M. Stringer, comptroller of New York City and trustee for New York Citys Retirement Systems, along with Javier H. Valdés, a community organizer, made the case for divesting from private prison company holdings in public pension fund investments. They argued that pension funds have a fiduciary duty to make sound investments that grow their portfolios and help fund retirement benefits for their members. That means, according to the two authors, constantly evaluating the long-term viability and risk of investments across the pension funds portfolios, which is what the New York City Comptrollers Office does every day. Specifically, the authors observe that investment in for-profit prison companies exposes the system to undue legal and regulatory risks and worker-safety issues that are inconsistent with the boards risk profile and objectives. While the argument has merit on moral, social and potentially financial grounds, the impact of divestment is unclear and open ended, its application has limitations as well as financial consequences and, in the end, there may be more effective ways to address these and similar concerns both on the part of the City as well as other institutional and retail investors.
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Does Michael Jordan Invest In Prisons
While many NBA players have scandals, Michael Jordan is not among them. But one man has made a controversial investment in private prisons: Oregon lawmaker Tariq Rasheed. When asked about Michael Jordans investment in prisons, Rasheed clarified that the former basketball star doesnt invest in prisons, but instead, hes an Oregon white dude. While its tempting to look at the basketball legends record and see a plethora of community and social causes, the fact is that Michael doesnt make any decisions on what to do with his money and he doesnt.
While he may not have invested in prisons, Michael Jordans investment is not without controversy. For example, he has donated $1 million to the Institute for Community Police Relations, which advocates for better relations between communities and law enforcement. However, despite the controversy, its unclear whether Jordans investments in prisons are really real. Although he doesnt own any prisons, his net worth has risen significantly from $1.85 billion in 2009 to over $2 billion by 2020.
Jordan, an activist and philanthropist, has been critical of Michael Jacksons prison investments. He has been accused of investing in private prisons despite not being a major basketball player. But it is unclear whether hes an investor in private prisons. In 2013, he donated $1 million to the Institute for Community Police Relations, which helps local police relations. But, hes not a prison stock king.
Welcome To The Big House
Like the poor, crime will always be with us — and the promise of a more cost-efficient model is likely what attracted mutual funds to invest in them in the first place.
So which widely held mutual funds own shares of Corrections Corp. of America, GEO Group, or both? Here are the top five holders in each:
Data source: Morningstar.
Other significant institutional holders include BlackRock, Invesco, and State Street, all investment giants with dozens, if not hundreds of funds. Vanguard, of course, is one of the biggest families of funds, and if there is a stock traded publicly on any of the exchanges, it’s probably in one of its mutual funds.
For diversification, you can’t beat these broad-based funds. But if you have biases against certain types of businesses, you will have to accept that you may own a piece of them regardless, even if yours is a very small stake.
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How To Invest In Prison Stocks
Whether you’re investing in stocks for a rainy day fund or a retirement plan, you can build long-term wealth with a diverse investment portfolio. As your portfolio grows, you may find that you have invested in prison stocks on Robinhood or your brokerage account of your choice and not realize it. Understanding the prison industrial complex and how investments in prison stocks work can help you avoid making unwanted investments.
How To Use The Tool
To use the tool, type the name or ticker symbol of the fund you’re invested in into the search bar and press enter. It then provides a letter grade for the fund based on how much of the fund is invested in companies profiting off of the private prison industry or the border industry.
The tool also lists the “flagged” holdings and details how each is potentially problematic. Banks, for example, are flagged if they finance private prisons or make a profit by tacking extra fees onto banking products used by inmates. Technology companies are flagged if their products are used by the U.S. government for border surveillance.
“This provides a way to look at how these businesses are supporting a system that contributes to injustice,” says Behar.
Other companies are listed if they are involved in incarceration and detention facilities in any way, including those contracted to provide transportation, health services and banking and financial services.
If you are investing primarily through a 401 at work, As You Sow also provides a sample letter to send to employers to request different fund options. If you are investing through a brokerage or individual retirement account, you have more flexibility with the funds you choose: You can invest in one of As You Sow’s top-rated funds, or search for others that align with your preferences.
Though some might see this as a small step for racial justice, Behar says it’s one of the most important things individuals can do.
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Prison Money: How Prisoners Can Intelligently Invest Their Money For The Future
Christopher Zoukis March 18, 20148,444 Views
What is more likely is that a prisoner manages to either save up a few hundred dollars during a few years or a decade or so of incarceration, or is able to collect as much through gifts from family and friends. With this money, a prisoner can make significant strides toward establishing a strong financial future. The steps involved in this process are usually the basic ones: opening a bank account, obtaining credit reports, opening credit accounts, paying off credit card bills on time, and gradually saving more money and improving their credit in the process.
The problem is that almost none of these steps can be accomplished from a prison cell. Prisoners cant go to a local bank branch and open a bank account . They cant apply for a credit card online, and they cant effectively pay their bills in a timely manner through the mail. Luckily, there are organizations specially positioned to handle these tasks and more for American prisoners.
Because of Prisoner Assistants size, track record of success, and respect in the inmate banking industry, we will use them and their schedule of services to present a roadmap for how American prisoners can intelligently invest their money for the future.
Open a Bank Account
Obtain Credit Reports
Apply for Credit Cards
Pay Bills on Time
Adding Loans into the Credit Building Mix
The Goal of Credit Building: Financial Security