Federal Retirement Fund to Exclude Hong Kong Investments

The U.S. flag flies outside the New York Stock Exchange in New York on March 11, 2019. Don Emmert/AFP via Getty Images

A main federal retirement fund will not invest in the Hong Kong stock market, as the risks of Chinese securities are increasing amid U.S. efforts to counter the communist regime.

The Federal Thrift Retirement Investment Board (FTRIB), a government agency that manages the federal retirement plan, voted unanimously to adjust the benchmark index it uses for its international stock investment fund, excluding all investment in Hong Kong, the board said in a Nov. 14 statement. The fund doesn’t invest in mainland China, and its previous plan to invest in Chinese stocks was halted amid strong opposition in Washington.

The decision comes as tensions between the world’s two largest economies remain high, including over the U.S. investment restrictions and export ban on sensitive technologies that could be used to help the Chinese Communist Party’s military modernization or undermine American national security.

The FTRIB said the change was made based on the recommendation from its staff and its consultant, Aon, who pointed to risks for investors amid U.S. restrictions on Chinese companies.

“If the current investment restrictions on China are the beginning of further restrictions spanning China and Hong Kong investments, this level of uncertainty can outweigh the benefits of expanding the I Fund to include China and retaining exposure to Hong Kong,” Aon was quoted as saying in the statement.

“Overall, operational complexity has increased when investing in emerging markets in recent years given a range of events such as investment restrictions on sensitive Chinese technology sectors, delisting of Chinese companies and sanctions on Russian securities due to the Russia-Ukraine conflict,” the consulting firm was quoted as saying. “These types of events can incur transaction costs and may cause performance and volatility swings.”

The board selected the MSCI All Country World ex-USA ex-China ex-Hong Kong Investable Market Index as the new benchmark for the $68bn international fund (I Fund). The plan currently relies on MSCI Europe, Australasia and Far East Index, which represents less than 60 percent of the international market.

The index shift is expected to take effect from next year.

I Fund is part of the Thrift Savings Plan (TSP), a retirement savings fund for federal employees and members of the military. As of Oct. 31, the I Fund totaled some $68 billion in assets, according to the statement.

The FTRIB decided in 2017 to change the I Fund’s index to the broader MSCI All Country World ex-U.S. Investable Market Index, which represents 99 percent of the international equity market and is 7.5 percent weighted to Chinese companies.

The move was supposed to take effect in the second half of 2020, but under significant pressure from the Trump administration and congress members, FRTIB “deferred” this transition in May 2020.

Sen. Marco Rubio (R-Fla.) speaks during a press conference in the U.S. Capitol in Washington on July 11, 2023. Madalina Vasiliu/The Epoch Times

Among the Chinese companies in the index that have drawn the ire of some in Washington is surveillance firm Hangzhou Hikvision Digital Technology, which was placed on a trade blacklist because its technology is used in the regime’s mass surveillance of Uyghur Muslims in China’s western Xinjiang region.

The fund would also invest in telecoms equipment company ZTE, which was penalized by the U.S. government for violating American sanctions, as well as aircraft and avionics company Aviation Industry Corporation of China, which provides weapons for the Chinese military.

According to an August statement released by the FTRIB, no funds within the TSP are invested in companies on the Treasury Department’s blacklists. It stated that the I Fund “does not, nor has it ever, invested in mainland China.”

Reactions

FTRIB’s latest move was welcomed by Sen. Marco Rubio (R-Fla.), who has campaigned for years to stop U.S. federal employee pension dollars from funding communist China.

“I applaud the board for taking this first step by choosing an investment fund that excludes China,” Mr. Rubio said in the statement. “Communist China should not profit from the retirement accounts of U.S. government employees and services members.”

Sen. Rick Scott (R-Fla.) speaks during a press conference in the U.S. Capitol in Washington on July 11, 2023. Madalina Vasiliu/The Epoch Times

Sen. Rick Scott (R-Fla.) applauded the change, calling it “a step in the right direction.”

“America’s federal workers have been recklessly and needlessly exposed to the risks posed by Communist China’s unaccountable and belligerent puppet companies,” he said in a statement on social media.

The Republican lawmaker raised concerns that some federal funds still have China exposure. He urged the FTRIB to “finish the job and remove companies controlled by Communist China from the Mutual Fund Window. Retirement accounts still have exposure in that space, and we need to eliminate it ASAP to protect retirements and stop funneling your money to the CCP.”

Isabel van Brugen, Michael Washburn, and Reuters contributed to this report.