I know nothing about stock market so am taking notes on the TSP article here.which names the names behind the decision.
This is note taking for my own information, which is why it is not really an essay or blog post.
This is note taking for my own information, which is why it is not really an essay or blog post.
Senators on both sides of the aisle are trying to stop the board from taking retirement funds from US gov't and military employees and investing it in china (see previous post).
At a FRTIB meeting Monday, Aon presented an updated study of the TSP's I Fund benchmark and recommended the board move forward with the change.
In 2017, the Federal Retirement Thrift Investment Board voted unanimously to change the index upon which the I Fund is based, from the MSCI Europe, Australasia and Far East Index to the MSCI All Country World Ex-US Investable Market Index, beginning sometime next year. The move marks a shift from a predominantly Euro-centric index, along with Japan, Hong Kong, Australia and New Zealand, to investments in 48 markets around the world, most notably including Canada and China.;;;only 8 percent is supposed to be for Chinese companies.
this article in pensions and investment newsletter also stresses the change was due to AonHewitt.
more links from that site:
At a meeting of the TSP board last month, consultants from Aon Hewitt, who originally recommended moving to the broader index in 2017, reaffirmed their recommendation.
Who is AonHewitt: Wikipedia article says an investment firm that cares for retiree funds. all over the world. Hewitt expanded into "China" in the early 2000s, before it merged with Aon.
Chinese website here.
The firm was investigated and cleared by the SEC/DOJ in 2011.
charges included money used in a way that the feds suspected they were bribing government officials because the books were not clear on how the money was being spent so they paid a14.5 million dollar fine.
they also got in trouble with the Brits in 2007 for the same reason, paying a 5 million pound fine.
(they aquired the Hewitt part of the company in 2011).
the board is advised by something called the employee thrift advisory council, so presumably this means popular input, right?
“The legislative history is quite dense, but when drafting the statute, Congress discussed the fact that, unlike a defined benefit program, the funds [in the TSP] would remain the property of the account holders, not the federal government,” said TSP general counsel Megan Grumbine. “They also worried that as the fund grew, it could be the subject of even more pressure . . . Now, the board does take advice from another body, but that’s the Employee Thrift Advisory Council.”
and who is on the employee advisory council? Gov't website;
(a) The Board shall establish an Employee Thrift Advisory Council. The Council shall be composed of 15 members appointed by the Chairman of the Board in accordance with subsection (b).
so they are from various labor organizations but are appointed by the chairman of the board. How convenient.
and hey, they agree:
ETAC Chairman Clifford Bailey said that both the council members and their constituencies have discussed the controversy over broadening the I Fund index, and that they developed a consensus that federal employees should have the same 401(k)-style investment opportunities as their private sector counterparts.
“Our group said, ‘I’d like to have that option, not withstanding political issues and the reasons presented by the senators,' ” Bailey said. “Leave it up to individual participants to have the options to invest how they choose, based on their beliefs and opinions. They just want the same options as those in the private sector.”
yes, but did anyone bother to ask the "individual participants" about this?
ah but a nameless bureaucrat is the "arbiter" of this:
“The Treasury Department’s Office of Foreign Asset Control is the arbiter of the investible universe, of what international securities are available to be invested in in the U.S.,” Bilyeu said. “The foreign asset control list—that’s the screen that’s applied to all investments available to Americans . . . It seems to me that this is a good conversation to have, but the right people to have that conversation [are officials at the Office of Foreign Asset Control] . . . Then it would apply to all U.S. investors, not just a subset of those who happen to be employed by the federal government.”
they won't be pushed around in the name of political correctness
“When I think about it, this all goes back to the role of the board in terms of what we’re responsible for as fiduciaries,” he said. “Congress was very intentional in providing guard rails around this so that we as a board make decisions solely for our beneficiaries and participants. Over the years, people have talked about adding funds based on [environmental, social and governance principles] and other things, but we’ve always maintained our focus on Ps and Bs.”
wikipedia on the office of foreign assets control.
translation: They do economic warfare against America's enemies or against people who are corrupt, associated with bribery or money laundering.
Sometimes described as one of the "most powerful yet unknown" government agencies,[5][6] OFAC was founded in 1950 and has the power to levy significant penalties against entities that defy its directives, including imposing fines, freezing assets, and barring parties from operating in the United States.
for example, they sanctioned a Chinese shipping company for smuggling oil from Iran illegally.
and the NYTimes in August reported sanctions against some Chinese individuals for their involvement with Fentanyl which is being smuggled into the US and killing people.
and this shows how corrupt people/countries can fool you;
In April, China announced that it would ban all variants of fentanyl. However, it did not ban all precursor chemicals that are used to make it, leaving open the ability for traffickers to ship those components to other countries where the drug can be produced.
so ship the precursors to Mexico and they can mix it up... and of course, a ban is useless if you can bribe officials to look the other way.
more about getting around sanctions using Hong Kong companies here. lots of shennanigans going on, and the article ends with this warning:
Companies that are concerned about unwittingly abetting illicit activity must implement risk-based controls for due diligence and transaction monitoring to detect SDNs and others who may be engaged in sanctions evasion or high-risk activities. Certain areas — for example, trade finance, petroleum and shipping — are inherently higher risk and require greater attention.
yes. but it's not their money so why worry.
do you really think that when money is involved, that someone is going to be diligent that the money won't be used for military, human rights violations, or in breaking sanctions against Iran or North Korea etc.
and don't forget the supply chain.
This Chinese company got in trouble because it had imported North Korean false eyelashes and got caught.
yes, this sounds absurd until you read that the eyelashes were worth 4 million dollars.
This is not the first time that OFAC has explored possible violations associated with Chinese companies, including cases violating other sanctions regulations. For example, OFAC has investigated both ZTE Corporation and Huawei Technologies Co. Ltd. for potential violations of the Iranian Transactions and Sanctions Regulations. OFAC encourages companies to have an in-depth due diligence program regarding Chinese suppliers, as this is a region that is considered to have a higher risk of violating North Korean Sanctions Regulations.
NYTimes says the fight is between Wall Street and the government.
\
Politico article says it's all about Trump's anti Chinese trade war.
The Trump administration is considering expanding its trade fight against China by targeting Beijing’s ties with Wall Street and American investors, according to two people familiar with internal discussions. The measures being weighed would force Chinese companies to delist from U.S. stock exchanges if they don’t meet U.S. auditing requirements.
The administration is also contemplating banning U.S. government pension funds from having investments in market indexes that list Chinese companies. ...SCMP article on the Senator's attempt to stop the pensions becoming involved with Chinese companies. and has another article about stopping the MSCI from adding so many Chinese companies to their list including those like Hikvision, who are directly involved with human rights violations.
but my main worry is corruption: They lie, cheat and you can't believe the books.
From Investopedia:
First and foremost, China is still a communist country. So despite the free-market principles, China has adopted, the rules that govern a public company in China are different than those in the U.S. Chinese stocks trade on the Shanghai Stock Exchange and the Hong Kong Stock Exchange.
Both exchanges have similar listing requirements to those of U.S. exchanges. Companies have to report financial statements regularly, have audits performed, and meet other requirements of size and capitalization.
Beyond that, however, rules and norms differ, which is where things get murky....italics mine. the article then goes to mention stuff like insider trading is common despite laws against it. And later they note:
Many Chinese companies are also listed directly on U.S. stock exchanges. Many years ago, these companies were market darlings. In recent years, however, virtually all of them have come under intense scrutiny due to the inability of investors to trust their financial statements.
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yahoo news NOV 14 2019 (Bloomberg)\
U.S. Retirement Fund Okays China Investment After Senate Threat
The board that oversees retirement savings for U.S. government employees will allow one of its funds to invest in an international index that includes Chinese companies, despite the threat of legislation from lawmakers who say the investments will undermine national security and contribute to China’s economic and corporate growth. The Federal Thrift Retirement Investment Board finalized the decision in its Wednesday meeting and informed the Senate sponsors of a bill that would ban such investments.
The board said a review by an outside investment consultant concluded that the move would be in the best interests of plan participants.
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