As federal scrutiny of Chinese corporations intensifies, lawmakers and policy observers are still awaiting answers on an investment options change for the Thrift Savings Plan’s International Stock Index, or I fund planned for 2020.

The Committee on the Present Danger: China, a conservative-leaning interest group, held a briefing for members Thursday to voice its objection to the Federal Retirement Thrift Investment Board’s announcement that it would broaden the I fund’s benchmark to include more emerging markets, including China.

FRTIB adopted the motion on Nov. 28, 2017 to have the I fund mirror the Morgan Stanley Capital International All Country World ex U.S. Investable Market Index. That index captures large, mid and small cap representation in 22 developed markets — the U.S. is not included — and 26 emerging markets — including China.

FRTIB was recommended by a hired consulting firm Aon Hewitt Investment Consulting Inc. to broaden the I fund’s benchmark from the MSCI Europe, Australasia and the Far East Index, which excluded the U.S., Canada and China.

According to AHIC’s recommendation, the costs for the transition were “reasonable” and “inclusion of emerging markets and international small cap equities to the I fund will not hinder the ability to meet the TSP’s daily liquidity needs.” The firm also concluded that the new benchmark, the MSCI ACWI ex U.S. IMI, generated the “highest expected yield and percentage out on loan.”

The board said in December that the transition would occur in “the second half of 2020.”

Roger Robinson, president and CEO of RWR Advisory Group and senior director of International Economic Affairs at the National Security Council for the Reagan administration, emphasized at Thursday’s briefing in Washington, D.C., that the I fund is taxpayer money, not private capital.

“[FRTIB have] made this decision to, for market-related reasons, to capture more companies in the investable universe of federal employees — sort of a technical liquidity-oriented and yield-oriented set of considerations which, normally, is the stock and trade, if you will excuse the pun, of fund managers,” he said. “But this time, when you go into emerging markets and away from developed countries where they are safely today, you encounter not just Chinese companies but in some cases national security and human rights abusers.”

Several lawmakers have already expressed those concerns.

Sens. Marco Rubio (R-Fla.) and Jeanne Shaheen (D-N.H.) sent a letter to FRTIB Chairman Michael Kennedy on Aug. 26 urging the board to reverse its decision. The letter said the move would expose nearly $50 billion in retirement assets of federal employees “to sever and undisclosed material risks associated with many of the Chinese companies listed on this MSCI index.”

On Wednesday Rubio also told CNBC that his concerns stem from the lack of transparency into Chinese securities compared to in the U.S., and that most if not all companies in China are government-backed or government-controlled.

“There are transparency requirements you have to be able to go see the audits why because you want shareholders to be protected there’s disclosure requirements things that you want people to know about those companies the risks they’re running the decisions they’re making and how they’re being managed. We don’t have that insight when it comes to these Chinese control companies,” Rubio said. “The Chinese require all of these records to be kept in the mainland, and they block our ability, our regulators’ ability to go in and see what’s going on truly behind the scenes and so you have American investors, including federal employees through the retirement program, the TSP program, investing their hard-earned dollars for their future retirement into companies, which we have no oversight in comparison to virtually every other company … selling securities on our exchanges and our markets.”

In their letter, Rubio and Shaheen asked the chairman to answer questions, on the board’s decision-making process and its plans around disclosure to TSP participants, by Sept. 6. On Sept. 13, Kim Weaver, FRTIB’s director of external affairs, said the board was reviewing the matter and that it would respond once the board had made a decision.

In May, Rep. Jim Banks (R-Ill.) introduced the Blocking Investment In Our Adversaries Act, which would “prohibit the [I fund] of the Thrift Savings Fund from investing in any entity in peer or near-peer competitor nations as outlined in the National Defense Strategy, and for other purposes.”

Banks said FRTIB’s decision to change the I fund’s benchmark would contribute to “potentially problematic” economies including China and Russia.

“Companies included in the [MSCI ACWI ex U.S. IMI] index include ZTE Corporation, Hikvision and the Aviation Industry Corporation of China, all three of which support the Chinese government in a technological or military capacity,” Banks said Thursday. “It seems ironic that federal employees’ funds would be used to support our adversaries. Many of these employees spend their entire career countering adversarial actions by countries like China.”

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