A conservative Republican US lawmaker is calling for the firing of California Public Employees’ Retirement System (CalPERS) CIO Ben Meng, citing Meng’s relationship with Chinese government officials.
Meng served as a top official responsible for investing more than $3 trillion of China’s foreign reserve currency before joining CalPERS. It was his role in China that Indiana Republican Congressman Jim Banks mentioned in a letter to California Gov. Gavin Newsom, questioning Meng’s ties to the Beijing government.
This is the second time within a week that CalPERS has come under fire from Republicans.
Last Saturday, US Secretary of State Mike Pompeo, in a speech to the National Governors Association detailing China’s secret efforts to influence the United States, attacked CalPERS.
The US and China have signed a trade agreement, but the speech was part of a continuing effort to get states to join the Trump administration in its geopolitical battle with China.
The secretary of state’s wide-ranging speech touched on pension plan investments in China, including CalPERS.
“California’s pension fund … is invested in companies that supply the People’s Liberation Army that puts our soldiers, sailors, airmen, and Marines at risk,” Pompeo said.
The secretary of state did not go into detail about CalPERS investments, but Banks did.
Banks also went right for Meng, as his letter questioned Meng’s “long and cozy” relationship with Beijing, as well as attacked the funds’ investments in Chinese companies, echoing Pompeo.
Meng did not respond to Banks, but CalPERS CEO Marcie Frost issued a statement addressing the situation.
“This is a reprehensible attack on a US citizen,” she said. “We fully stand behind our chief investment officer, who came to CalPERS with a stellar international reputation.”
Meng is a US citizen but was born in China. He started at CalPERS in 2008 and worked for seven years as an investment staffer, heading asset allocation effects.
He later served as deputy CIO with China’s State Administration of Foreign Exchange. The Chinese agency administers China’s foreign exchange reserves, which are estimated to total more than $3 trillion.
Meng rejoined CalPERS in January 2019 as chief investment officer.
Banks said that if Newsom doesn’t fire Meng, he should conduct an investigation.
“At the least, I think a thorough investigation of Mr. Meng’s relationship to the Chinese Communist party and a comparison of CalPERS investments in Chinese companies before and after Mr. Meng’s … [latest] hiring are both warranted,” he said in his letter.
The California governor does not have the power to directly fire Meng.
CalPERS is administered by a 13 member board, though the governor does have two direct appointees on the board and a third member is appointed by representatives of the governor. The state treasurer and controller also serve on CalPERS board.
Even if the majority of board members would want to terminate Meng, they could not take any action. Under CalPERS rules, only Frost, the CEO, could terminate Meng.
Banks went beyond Pompeo’s remarks in his letter to the governor, citing CalPERS’ investments in specific Chinese companies, one which has run afoul of a Trump administration blacklist.
He attacked investments in Hikvision, a Chinese company that builds surveillance equipment used in high-security detention camps for China’s minority Muslim population.
The partially state-owned Chinese company was put on a Trump administration blacklist in October, prohibiting Hikvision from buying US technology without US government approval.
The blacklist, however, does not prevent CalPERS and other US pension plans from holding shares of the company.
Banks also cited China Communications Construction Co., which has been building naval bases at the request of the Chinese government in the disputed South China Sea.
Frost defended the investments in a statement.
“We’ve had a globally diversified portfolio for decades,” she said. “This is a politically opportunistic attempt to force us to divest, undermining our ability to perform our fiduciary duty to provide retirement security to California’s public employees.”
The California state legislature has banned CalPERS from investing in Iran and Sudan, but there are no such restrictions on China.
CalPERS, the largest US defined benefit plan, has more than $200 billion invested in the stock market. Much of the money is invested through index funds, though CalPERS has speculated on individual stocks in the past.
CalPERS spokesman Wayne Davis said the investments in the Chinese companies were part of passive index fund investments in broad segments of global stocks.
CalPERS has been aggressive in building its international portfolio, not only in equity but in other asset classes, such as private equity and real estate.
CalPERS’ exposure to China exceeds $3 billion, according to pension plan reports, and its investments have increased as global indexes in the past two years have expanded Chinese companies in their listings.
CalPERS rules require the pension plan to monitor and engage companies in its portfolio through its environmental, social, and governance (ESG) positions, a thorny issue when dealing with state-owned enterprises in authoritarian China.
CalPERS officials have not said whether they have engaged with either Hikvision or China Communications Construction Co.