Are You Unknowingly Investing In Private Prisons? – Forbes

While there’s a need to house people convicted of crimes, some U.S. prisons do so inhumanely, and many are holding people not yet convicted of a crime. Private prisons pose particular problems. They are part of what is known as the “prison industrial complex.” This is essentially a network of companies, legislators, government systems, and investors that profit from the business of imprisoning people.

The prison industrial complex also includes companies that sell goods and services at inflated prices to incarcerated people and companies that pay low or no wages for prison labor. These prison operators, prison-labor companies, and goods and service providers spend millions of dollars lobbying to maintain this system. That effort in and of itself suggests that profit is a stronger motivator for private prisons than keeping communities safe or rehabilitating those who have committed crimes.

Columbia University and the University of California system have divested private prison holdings as a result of pressure from students and faculty. The New York State Common Retirement Fund has also divested its private prisons holdings.

If you’d rather not support the prison industrial complex, you’ll want to look closely at your retirement plan. It’s easy to be invested unknowingly in private prisons. Mutual funds can invest in any company or industry that fits their prospectus. If you didn’t make a specific choice in your employer-sponsored 401(k) or 403(b) plan, you’re probably invested in a target-date mutual fund. I haven’t seen a target-date fund exclude any investments. Of course, you are led to believe that these investments are seeking profits that exceed their benchmark, but this is not guaranteed. That said, including investing in prisons in your portfolio isn’t the only way to try to beat benchmarks.

How to tell if you’re supporting prisons

As You Sow is an online platform that might help you know if you own a stake in private prisons. Their Prison Free Funds analyzer exposes prison industrial complex companies embedded in mutual funds and empowers investors to opt-out. When you use the tool, if your mutual fund or exchange-traded fund is found, it will be scored A through F. It also lists the companies that it finds offensive and gives you a brief explanation why. You can then do further research to make up your own mind. You may want to check out As You Sow’s methodology to get a better understanding of their grading system.

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Concerned that you won’t 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 doesn’t 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

Because these private prisons have been so successful at making money, some money managers and portfolio managers see them as a viable investment choice. Private prisons can easily get included in the default investment choices in target-date mutual funds or 401(k) or 403(b) investments.

So, what happens when you are staunchly opposed to private prisons and the profits they turn, but your employer-sponsored retirement portfolio is teeming with companies involved in the prison industrial complex? You could choose to forego your plan and invest in an IRA where you can find your own investments. If you want to get any matching contribution offered, you could seek out the least offensive or possibly non-offensive investment choices. But this may not allow you to have a balanced, risk-adjusted return portfolio suitable for your retirement needs. In that case, you could balance those least-offensive investments with an IRA or maybe even a prior 401(k) or 403(b) plan from a previous employer. That complexity may lead you to look for an investment adviser representative with the proper screening and investing tools to help you create that portfolio.

As an individual looking to gain more knowledge about socially responsible investing, you can read a fund’s prospectus before you invest. Does it have a mandate that it won’t invest in private prisons? If not, that means it may choose to invest in them in the future. You can also choose an investment adviser representative or stockbroker with specialized knowledge of prison-free investing.

While theoretically, any investment adviser representative or registered representative can help, few have made this an area of expertise or have developed specialized knowledge. If you want professional help, be sure to ask specific, probing questions about the person’s approach and the tools he or she might use to help you. You may even ask for a sample portfolio or two as proof.

Why not invest your values? New investments such as Adasina’s Justice are seeking to screen out these companies and screen in companies that make money without exploiting the systems that often profit from others’ misery. Adasina’s exchange-traded fund (ETF) includes global companies whose business practices are aligned with Adasina Social Justice Investment Criteria and excludes companies whose practices impede the advancement of equitable systems. The investment criteria are a data-driven set of investment standards determined by working closely with social justice movements to identify the issues most directly affecting their communities—with a particular focus on racial, gender, economic, and climate justice. (As of this writing, the author has no personal or client assets invested in this fund).

Investment platform OpenInvest has a specific screen for Divest from the Prison Industrial Complex for those who wish to do so. In fact, it has roughly 20 different screens—such as Reduce Green House Gas Emissions and Invest in Women Leaders—to choose from on its cause-based investing platform. Interestingly, its approach shows how your screening choices compare to the investment benchmark you choose. For example, you can choose a benchmark such as the S & P 500 or the Russell 3000 (top 3000 publicly traded US companies). Next, it takes out companies that score poorly on your causes. Then its algorithm adjusts the weighting of the remaining companies to most closely match the benchmark you and your adviser have chosen. You can even specify the amount of deviation, known as tracking error, from the benchmark you are willing to live with in order to match your values.

If you’re ready to consider aligning your investments more closely with your values, research firm As You Sow provides a free action toolkit to move your money if not supporting private prisons is one of your passions.

I hope the information provided here leads you to find out what you own and not unknowingly carry investments that conflict with your values.

1 http://www.world-psi.org/en/aft-says-investments-private-prisons-put-our-retirement-savings-risk

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