CalPERS’ top money man is targeted in fears of Chinese espionage

By John Gittelsohn, Sridhar Natarajan and Jenny Leonard

Bloomberg

Feb. 25, 2020 2:51 PM PT

It was the kind of warning familiar to Fox News viewers in the Trump era: an immigrant purportedly posing a danger to U.S. security.

Only this time, the supposed threat wasn’t part of an “invasion” from Mexico or Guatemala. Instead, the immigrant controls the fate of the retirement investments of millions of people in California.

His name is Ben Meng. And there was his face, imposed over a waving American flag, as Tucker Carlson, the network’s conservative 8 p.m. host, listened to grave warnings about just where Meng’s loyalties might lie.

Suddenly Meng, a U.S. citizen who grew up in China, has been swept up in the debate over immigration, national security and the politics of who gets to be a “real American.” Last week, a Republican lawmaker took to Carlson’s prime-time TV show and accused the man who oversees California’s $400-billion state pension fund of being a tool for the Chinese government and funneling American money into Chinese hands.

Now the California Public Employees’ Retirement System is fighting back, and it’s rallying some of Wall Street’s biggest names to quell the charge. Even in a time of heightened scrutiny over U.S. investments in China, they say, the targeting of Meng goes too far.

“This type of attack on an accomplished American citizen is unwarranted,” said Stephen Schwarzman, chief executive of the private equity firm Blackstone and one of President Trump’s closest Wall Street allies. “Ben is a talented investor who has done a tremendous job for the pensioners.”

In 2018, when Meng was named CalPERS’ chief investment officer, his experience in China was touted as an asset. Now, Rep. Jim Banks (R-Ind.) is using that same background as reason to investigate Meng’s allegiance and win backing for a crackdown on government workers’ dollars flowing into Chinese companies.

The explosive allegations center on Meng’s three-year stint, which ended in 2018, of helping oversee China’s $3 trillion in currency reserves. During that time he was deputy chief investment officer of China’s State Administration of Foreign Exchange, or SAFE.

Meng was hired for his job at the Chinese fund via a government recruitment plan known as the Thousand Talents Program. That, according to Banks, likely includes a lifelong mission to support Chinese authorities.

Banks called for Meng to be fired and said CalPERS’ investments in Chinese companies — which amount to roughly 1% of assets and is done by passively tracking indexes — must be investigated because of what the lawmaker alleges is Meng’s “cozy relationship” with the Chinese Communist Party.

“It goes against American values to impugn someone’s character on the basis of their family’s national origin.”

— Howard Marks, founder of Oaktree Capital

Meng, 50, denied Banks’ claims and said his connections with Thousand Talents ended when he left SAFE two years ago.

“SAFE used the Thousand Talents Program to be able to hire U.S. contractors,” he said in a statement. “I was associated with the program through my employment with SAFE. Any connection to the program ended when I left. I am a proud American citizen.”

Meng also countered the claim that he steered CalPERS to support China’s military or repression of human rights. The fund excludes companies banned by the U.S. Treasury’s Office of Foreign Assets Control.

“CalPERS has public equity investments in 50 countries, and the method of investing in them has not changed at all since I came back,” he said. “We’re an index investor and it’s been that way for many years. The index provider determines what equities to hold, not CalPERS.”

Some of the leading lights in finance have come to his defense.

Oaktree Capital founder Howard Marks said he has known Meng for a decade and was particularly outraged when he saw Banks attack Meng on Fox News.

“It goes against American values to impugn someone’s character on the basis of their family’s national origin,” Marks said.

Fighting Chinese espionage and unfair trade practices is a valid pursuit, but dragging a Chinese American into the fray is unfair, according to Niall Ferguson, a friend of Meng’s and fellow at the Hoover Institution. Early last year, Ferguson reached out to Meng to warn him that rising trade tensions could be a problem for people like him.

“If this turns into an opportunity for people to have a go at a Chinese-born U.S. citizen, then I’m opposed to it,” he said. “People like Ben are the people we don’t want to alienate.”

CalPERS dispatched Meng’s top deputy, Dan Bienvenue, to Washington to meet with Banks and followed up with a Feb. 20 letter from Chief Executive Marcie Frost defending its index-tracking strategies.

Those explanations have done little to placate Banks or his Republican allies on Capitol Hill. Sen. Tom Cotton (R-Ark.), one of the leading China hawks in Congress, and Rep. Liz Cheney (R-Wyo.) have expressed support for Banks’ inquiry into CalPERS and Meng’s ties to the Chinese government.

The heightened scrutiny comes on the heels of growing tensions between the U.S. and China. In addition to a simmering trade war, the Trump administration has been exploring possible restrictions on investments in China, with a particular focus on those made by U.S. government retirement funds. Legislation to block certain investments in China was introduced in the House and Senate last year.

Secretary of State Michael R. Pompeo singled out CalPERS in a Feb. 8 speech warning about China’s campaign against U.S. national interests.

“The largest public pension fund in the country is invested in companies that supply the People’s Liberation Army that puts our soldiers, sailors, airmen and Marines at risk,” Pompeo said.

Of course, concerns about China’s growing geopolitical ambitions and its efforts to undermine U.S. national security are real. And there’s bipartisan support for greater scrutiny of the Thousand Talents Program, developed by the Chinese government to recruit overseas researchers to apply their skills in China.

China published the names of Thousand Talents Program recruits online until September 2018, when Yanjun Xu, a Chinese American engineer (and program participant) working for General Electric, was arrested for allegedly stealing tech secrets from the company. Last month Charles Lieber, a leading Harvard nanoscientist, was charged with lying about his work with the program.

Plus, there’s an argument to be made that passive investors need to be more mindful of where they put their money.

“State public employee pension systems should be especially alert to higher-risk Chinese and Russian corporate human rights and national security abusers in their investment portfolios, including those embedded in popular indexes and associated [exchange-traded funds],” said Roger Robinson, CEO of risk consultancy RWR Advisory, who has been pushing for such an action for at least three decades.

Nevertheless, Robert Daly of the Kissinger Institute on China and the U.S. said those concerns don’t justify the blowback that Meng is getting now, even if he was involved with the Thousand Talents Program at the time.

“Unless there is evidence that he has committed illegal acts, I don’t see any reason to place him under suspicion,” he said.

Gittelsohn, Natarajan and Leonard write for Bloomberg.