Illustration: Rebecca Zisser/Axios
The latest season of Red Scare has come to Sacramento.
Driving the news: Rep. Jim Banks (R-Ind.) has repeatedly accused Ben Meng, chief investment officer of the California Public Employees' Retirement System (CalPERS), of tacitly working on behalf of the Chinese government. Banks also says that, were it up to him, Meng would be fired — and has questioned the patriotism of California Gov. Gavin Newsom for not at least investigating Meng.
The most important thing to know is charge against Meng is mostly baseless. And, even were Banks' theories corroborated, it still doesn't make much sense.
The backdrop: Rep. Banks claims Meng has "steered" $3.1 billion into 172 Chinese companies, based on CalPERS investment reports.
- Meng doesn't pick the companies in which CalPERS invests. Neither does anyone at CalPERS, which doesn't have an internal stock trading desk. Almost all CalPERS equity investments, both domestic and international, are done via third-party passive indexes. CalPERS also has a few active equities managers, although again those are third-parties.
- Some increase in CalPERS exposure to Chinese equities could be based on the FTSE last year deciding to include China A shares, but CalPERS' user of FTSE as a benchmark index (alongside MSCI) long predates Meng's employment.
- But let's imagine Memg was "steering" this money. It works out to $18 million per company. Big money for most of us, but not for some of the large Chinese companies at issue.
Banks acknowledges that other public pensions have similar exposure, but argues CalPERS is different because Meng once was part of the 1,000 Talents Program — a Chinese program to recruit and retain the country's best and brightest. The FBI has argued that the Chinese government has sometimes used 1,000 Talents for "unofficial espionage."
- Meng was born in China, and remained there until his mid-20s. He moved to the U.S., where he became a citizen and held various jobs on Wall Street. He then spent seven years at CalPERS before returning to China as deputy CIO of China's State Administration of Foreign Exchange (SAFE), which oversees around $3 trillion of currency reserves. He rejoined CalPERS as CIO in January 2019.
- Meng claims his involvement with the 1,000 Talents program was limited to recruitment for the SAFE role, and there is no known evidence to the contrary.
- In one breath, Banks is simply asking Gov. Newsom to investigate Meng. In the next, he's saying there's already enough smoke to have him fired.
- Quick note: California's governor does not control CalPERS executive employment. That is done by the CalPERS board, which is something CEO Marci Frost makes clear in her public response to Banks.
Outside of the personal attacks, Banks is basically arguing for divestment from China — or at least from companies at all involved with China's military and/or government intelligence community. Similar to what we heard last year from Sen. Marco Rubio, in terms of the MSCI index.
But the proper place to make that case is at the U.S. Treasury Department, or inside the Oval Office. Not on cable news, at the reckless expense of a U.S. citizen tasked with generating financial returns for pensioners.