28 Apr 2020 MSCI Risks Losing Federal Employee Assets by Funding Chinese Government Enterprises
Free Enterprise Project Urges Finance Giant to Remove Companies With Chinese Government Ties From Its Indexes
Washington, D.C. – MSCI CEO Henry A. Fernandez indicated at the company’s annual shareholder meeting today that the company has no plans to even consider adjusting its global investment indexes to exclude Chinese government-involved entities. This is despite bipartisan Senate pressure and a rapidly-deteriorating public attitude toward Chinese investment in the wake of the coronavirus pandemic.
MSCI’s World ex USA Investable Market Index includes shares of many Chinese state-owned or-directed companies. Investors in that index fund effectively invest in the Chinese government and its instrumentalities. Even before the coronavirus crisis, Senators [Marco] Rubio and [Jeanne] Shaheen, among others, were calling for the Thrift Savings Plan, the federal workers’ retirement fund, to stop using the MSCI index as a benchmark for its investments. These calls will only increase as the push to decouple from China, and especially Chinese government-involved entities, grows intense. Will MSCI commit to divesting this and other indexes of Chinese state-involved entities in order to maintain the Thrift Savings Plan as a vast and vital client?
Fernandez answered, in part:
First I’d like to indicate that it is not our practice or policy to comment on any specific client or our business with any particular client.
In general I will say that all clients of MSCI around the world have a choice of any index benchmark they wish to use pursuant to their stated investment objectives. Some of them may use our standard indices which include all companies, whether state-owned or not state-owned, that are publicly listed, whether they are in China or in France or in the U.S., and those are the standard indices that we offer.
If somebody wants to make a specific and explicit exclusion of a particular set of companies or countries, they would come to MSCI and ask us for a specialized customized index which we are always happy to provide in order for them to have their own benchmark for their own investment objectives.
After the meeting, Shepard responded:
The coronavirus crisis has underscored, as nothing else could have, the serious – even existential – risks that arise from relying too heavily on China, Chinese companies and Chinese supplies. China is not a free country. It cannot be relied upon to tell the world what goes on within its borders. As we have experienced, this makes us all far too vulnerable to contagions.
It also makes us vulnerable to market manipulations by the Chinese government, which is still expressly and proudly Communist, and which plays a direct and enormous role in virtually all parts of the Chinese economy. This includes direction and outright ownership of many firms.
It is almost impossible to believe that the United States government will, after this crisis, invest any of the assets of its employee retirement fund, the Thrift Savings Plan, in Chinese government-owned or -directed companies. It also stands to reason that there will be a significant battle about investing in companies that funnel money to such entities in their standard global index funds.
Fernandez gave us no reason to believe that the company is going to rethink its strategies in response to this massive change in sentiment among the American people and the leaders who represent them. This sort of hidebound refusal to think anew, when facts change, bodes poorly for MSCI investors.
Today’s MSCI meeting marks the tenth time FEP has participated in a shareholder meeting in 2020.
To schedule an interview with a member of the Free Enterprise Project on this or other issues, contact Judy Kent at (703) 759-0269.
Launched in 2007, the National Center’s Free Enterprise Project focuses on shareholder activism and the confluence of big government and big business. Over the past four years alone, FEP representatives have participated in over 100 shareholder meetings – advancing free-market ideals about health care, energy, taxes, subsidies, regulations, religious freedom, food policies, media bias, gun rights, workers’ rights and other important public policy issues. As the leading voice for conservative-minded investors, it annually files more than 90 percent of all right-of-center shareholder resolutions. Dozens of liberal organizations, however, annually file more than 95 percent of all policy-oriented shareholder resolutions and continue to exert undue influence over corporate America.
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