Trump administration is ‘looking at’ CalPERS’ China holdings, official says. Here’s why
The Trump administration is “looking at” CalPERS’ investments in China over concerns the investments might conflict with U.S. interests, National Security Advisor Robert O’Brien said this week.
Speaking Wednesday at the Heritage Foundation, a conservative think tank based in Washington, D.C., O’Brien became the latest high-ranking Republican to target the California Public Employees’ Retirement System over an international investment strategy that is common among public pension systems.
CalPERS passively invests in an index fund that tracks large companies with the most market value. Included in the group are Chinese companies that supply the country’s military with equipment.
“It’s concerning,” O’Brien said. “And moreover, why are we sending American capital to a country and supporting a defense industry that’s popping out a couple destroyers and frigates a month and threatening to have total overmatch against us in the Pacific?”
O’Brien, Trump’s fourth national security adviser, was responding to an audience member’s question about China investments held by CalPERS and a federal retirement fund. He didn’t touch on the federal plan, focusing instead on California’s pension system, the largest public state pension system in the U.S. His comments were first reported by Reuters.
In response, CalPERS CEO Marcie Frost said Thursday that the fund follows all federal and state rules in its investment decisions. CalPERS is focused on achieving the returns it needs to make the $24 billion per year it pays retirees, Frost said.
She suggested that those looking for changes related to China investments should take up their concerns with the U.S. Treasury Department, which regulates international stock-buying through its Office of Foreign Asset Control.
“We don’t discount the real issues between the U.S. and China, but we don’t believe CalPERS is the place to necessarily resolve them,” Frost said.
O’Brien also also raised concerns that some of the companies aren’t held to the same accounting standards as U.S. companies.
“If someone told me I had to invest my 401(k) in Chinese state-owned enterprises, or partially state owned enterprises where they don’t follow the generally accepted accounting principles and they don’t have to report to independent regulatory bodies, I’d be pretty worried about that,” he said. “So it’s something we’re taking a look at.”
The index funds known as MSCI and FTSE select the international companies in which CalPERS invests, but the California fund uses proxy voting and other means of engagement to try to make sure the companies are on sound financial footing, Frost said.
In late February, when the CalPERS fund’s value stood at about $400 billion, its China stocks represented about 1 percent of its total holdings, she said. The fund’s value and many of its stock holdings have plummeted since then due to the coronavirus.
CalPERS can instruct the index fund to screen specific stocks from its holdings, but typically has only done so at the direction of the CalPERS board or the Legislature, she said.
Were CalPERS to take a more active approach to international holdings, the fund would have to pay a lot more money in fees, making it more difficult to meet its obligations to retirees, she said.
O’Brien’s comments Wednesday echoed those made by Secretary of State Mike Pompeo in early February, and, a little more recently and more aggressively, by Indiana Republican Congressman Jim Banks.
Their comments have come against the backdrop of President Donald Trump’s trade war with China.
Banks issued statements and went on Fox News to call on Gov. Gavin Newsom to investigate CalPERS’ China holdings and its chief investment officer, Ben Meng.
Banks targeted CalPERS’ “$3.1 billion worth of shares in 172 different Chinese companies, many of which are complicit in the Chinese Communist Party’s human-rights abuses and act against the United States’ interests.”
In addition to companies that supply military equipment, CalPERS has stock in Hikvision, a company whose cameras are used in camps in which China detains ethnic Uighurs, according to Reuters.
The state pension funds of both Indiana and Kansas, which Pompeo represented in Congress, also hold stock in Hikvision and other Chinese companies, according to their holdings reports.
Meng, a U.S. citizen who was born in China, worked for the country’s foreign exchange office for three years after a seven-year stretch at CalPERS. He returned to CalPERS when the fund hired him for his current job in fall 2018.
Banks accused Meng of involvement with the Thousand Talents Program, a government recruitment program, based on his time at the foreign exchange office.
Meng addressed some of Banks’ accusations in a Bloomberg article, telling the publication, “SAFE used the Thousand Talents Program to be able to hire U.S. contractors. I was associated with the program through my employment with SAFE. Any connection to the program ended when I left. I am a proud American citizen.”
This story was originally published March 13, 2020 at 5:00 AM.