All three of President Trump’s picks suggested that investing feds’ retirement money in Chinese companies could be too risky, but said they would base any decisions within their fiduciary responsibility to participants.
President Trump’s three nominees to the board that administers the Thrift Savings Plan told senators on Wednesday that they would leave politics out of their decision-making if confirmed, although they viewed Chinese investment as a risky proposition from a fiduciary standpoint.
Trump nominated John Barger, Christopher Burnham and Frank Dunlevy to three of the five positions of the Federal Retirement Thrift Investment Board in May, after the current board declined to halt a plan to change the index upon which the TSP’s international (I) fund is based to a broader collection of emerging market investments, including China. The other two board seats can only be changed in consultation with the speaker of the House and the Senate majority leader.
Since the nominations, the current board members voted to put the index change on hold, pending the confirmation of the new members, and board Chairman Michael Kennedy resigned in June. The board members who voted in favor of the move have argued that it is the best decision for TSP participants, and that questions about the suitability of investing in China should be answered by the Treasury Department’s Office of Foreign Assets Control.
Sen. James Lankford, R-Okla., asked the nominees for their thoughts on the question of whether federal workers should have exposure to the Chinese economy in their retirement savings program.
“There’s been a lot of controversy over Chinese funds being included in the international fund, and if we should have federal dollars used to support Chinese companies,” Lankford said. “I know you don’t make the final decisions in some of this, but there is an important impression that needs to be there on an investment strategy and how we invest federal employees that have worked very hard to protect our free market systems into locations and companies that work antithetically to free market systems.”
All three of the nominees said they are skeptical of Chinese investments because they are not subject to oversight by the Public Company Accounting Oversight Board, but said any decision they would make, if confirmed, would be based solely in their responsibility to maximize the earning potential of federal workers’ investment dollars.
“I have great concerns about investing in China because of the reporting standards with Chinese firms,” Barger said. “I’d want to look into the standards that the Chinese are imposing on their companies and how that stands up to investible assets for our beneficiaries. You also have to look at diversification, the impact and whether it’s really needed to invest in China, given the risk profile. Fundamentally, though, I’ll be guided by what I consider to be my fiduciary duty, that is the duty of care and loyalty, to the beneficiaries of the fund.”
Committee Chairman Ron Johnson, R-Wis., asked more broadly about whether Americans should be investing in Chinese corporations. But Burnham, a former Connecticut state legislator and treasurer, drew a strict line between his role as a steward of retirement funds and decisions that are fundamentally political.
“It’s fully appropriate for you to enter into that debate, just in the way that in the Connecticut House of Representatives we entered the debate of whether it was appropriate or not for the pension funds of state employees and teachers to invest in South Africa, Iraq, Iran or in companies that failed to abide by the McBride principles,” he said. “But when I left the legislature and was elected state treasurer, I abided by the law of the land and obeyed the law of the land. One of the things I resisted was divesting from tobacco stocks because I don’t’ make political decisions like that. My fiduciary duty is to make the highest return at a reasonable risk.”
Frank Dunlevy said that Americans invested in domestic markets already have exposure to the Chinese economy through the international presence of many major companies.
“Most people are unaware that you get a lot of international exposure already in the S&P 500,” Dunlevy said. “Between 15% and 40% of earnings of an average company is from international, and somewhere between 7% and 15% of that is from China. So you’re getting the kind of exposure to growth markets you may want, but you’re getting them through the accounting standards of the U.S., reviewed by the [Securities and Exchange Commission], and you’re not facing the specific risk that you take when you invest in China.”
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