October 29, 2019 / 4:49 AM / 19 days ago

Rubio vows bill to prevent federal pension fund from investing in China

(Reuters) - U.S. Senator Marco Rubio plans to introduce legislation to block a federal pension fund from investing in Chinese stocks after the fund delayed a decision on tracking an index provided by MSCI Inc (MSCI.N) that includes Chinese firms.

FILE PHOTO: Senator Marco Rubio in Washington, U.S., January 29, 2019. REUTERS/Joshua Roberts

The move is the strongest yet by Rubio, a Republican and China hawk, to pressure the Federal Retirement Thrift Investment Board (FRTIB) into reversing a decision that would allow federal employees and military service members to invest their retirement savings in a fund that includes China-listed stocks.

“Its clear the Board will not act in the best interests of the United States, reverse this misguided decision and protect our national interest, as well as those who serve it,” Rubio said in a statement on Monday.

“That’s why I will be introducing bipartisan legislation to ensure that federal retirement savings can never be a source of wealth funding the Chinese Communist Party at the expense of our nation’s future prosperity.”

FRTIB spokeswoman Kim Weaver said on Tuesday the board, which plans to revisit the index decision at a Nov. 13 meeting, would review the legislation when it is introduced.

The effort by Rubio comes amid heightened U.S.-China trade tensions and as the U.S. government considers ways to limit the flow of U.S. capital to Chinese companies due to security concerns about their activities.

The FRTIB administers the Thrift Savings Plan (TSP), a retirement savings plan similar to a 401(k), for federal employees and members of the military. As of July 2019, the TSP had around $599.5 billion in assets, which are owned by the plan’s participants, who choose which of the TSP’s funds they want to invest in.

Rubio and other senators have denounced the TSP’s plan to switch the benchmark its international fund tracks to MSCI’s All Country World ex-U.S. Investable Market Index.

The index represents 99% of the international equity market, with a 7.5% weighting to Chinese firms. The TSP currently tracks another MSCI index that represents 58% of the international market, and does not include China.

Some of the companies included in the index “assist in the Chinese government’s military activities, espionage, and human rights abuses, as well as many other Chinese companies that lack basic financial transparency,” Rubio and Democratic Senator Jeanne Shaheen said in one of two recent letters to the FRTIB.

MSCI is one of the world’s largest index providers, with trillions of dollars tracking its benchmarks.

Along with other index providers, like FTSE Russell and S&P Dow Jones Indexes, MSCI in recent years has increased the weighting of Chinese-listed companies in some of its indexes as China’s economy has opened more, helping asset managers invest in the country.

MSCI previously responded to Rubio’s criticisms, saying there is no U.S. law or regulation that prohibits an index company from creating an index containing Chinese securities or U.S. investors from trading Chinese shares.

Reporting by John McCrank and Lawrence Delevigne in New York; additional reporting by Aishwarya Nair in Bengaluru; editing by Jane Wardell and Tom Brown

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