After receiving an intelligence report asserting that the Chinese Communist Party had intentionally disguised data pertinent to its domestic COVID-19 situation, the White House reportedly is considering banning a planned expansion of a federal pension’s investment portfolio into Chinese equities later this year.
The possible action is intended to modify the $700 billion Thrift Savings Plan’s expansion approved last November that included a change in the index used to benchmark the plan’s International (I) fund from the MSCI Europe, Australasia, and Far East Index (EAFE) to the MSCI All Country World Ex-US Investable Market Index (ACW Ex-US), according to multiple reports last week citing unnamed sources.
President Donald Trump reportedly instructed his aides to move quickly to look at other options for the pension plan. “We can’t allow this to move forward,” Sinclair Group cited a source quoting Trump as saying. Trump has stated he has found compelling evidence that gives him a high degree of confidence that the origin of the coronavirus pandemic was the Wuhan Institute of Virology.
Aon Hewitt, the I Fund’s consultant, has reiterated support to switch into the new index, citing that it is expected to perform significantly better than the EAFE in the coming decades, and the ACW Ex-US index more accurately matches the statutory language that is at the fundamentals of the I fund.
The decision attracted significant contention from legislators, who expressed concerns over the potential of comprising the country’s national security by emboldening China with a relatively large array of investments.
“This will literally send tens of billions of dollars onto the Chinese stock exchange,” Sinclair Group quoted Rep. Mike Waltz, a Florida Republican, as saying, “and help companies that are directly involved in the Chinese defense industry—and in espionage.”
The Federal Retirement Thrift Investment Board offered a rebuke to the decision’s critics by saying such a ban into the AXW Ex-US index “discriminates against 5.8 million employees, retirees, and service members by restricting their ability to direct their money and save for retirement.”
“Not only is the FRTIB analysis of the bipartisan TSP Act deeply flawed, the board’s claim that there is no international index available that meets the bill’s criteria is categorically false,” Florida Sen. Marco Rubio’s spokesman, Nick Iacovella, said in a statement to Reuters. Rubio is one of the bill’s sponsors.
The largest company in the ACW Ex-US by proportion is Alibaba Group, an online marketplace host originated in China. Approximately 10.18% of the index’s holdings belong to China as well.