Political meddling in US fund manager decisions continued apace last week after attorneys general of 17 states signed a letter slamming BlackRock and five other firms over poor disclosure and “misrepresentations” of Chinese investments.
In the letter sent to BlackRock, State Street, Invesco, JPMorgan, Goldman Sachs, and Morgan Stanley, the state legal chiefs allege the managers routinely make “misstatements and omissions” on China investment risks.
Fronted by Montana Attorney General Austin Knudsen, the states have asked the named managers to reply to a long list of questions with potential government-related fund mandate losses looming over the China investment links,
“Misstatements or material omissions implicate state laws on securities and on unfair and deceptive acts and practices, and prevent fiduciaries from being able to fulfill their duty of care to investigate the facts underlying an investment,” the letter says. “This means that it may be impossible for state defined benefit plans, public 457 plans, businesses offering 401(k) plans, or other fiduciaries to invest in funds with China exposure without violating their fiduciary duty.”
BlackRock copped the worst of the state-based legal critique due to the scale of its Chinese exposure and environmental, social and governance (ESG) policies.
“We are particularly concerned about BlackRock’s material misstatements and omissions, as BlackRock is the largest issuer of emerging market ETFs and China ETFs,” the letter says. “BlackRock implies that investing in China has similar risks to investing in other countries, even though China is a statutorily-designated foreign adversary of the U.S. and has threatened to invade Taiwan.”
Among other issues, the attorneys general slate BlackRock, especially, over alleged greenwashing in funds with China holdings including the ‘ESG Aware’ emerging markets strategy.
“Shockingly, this fund has an ‘AA’ ESG fund rating, exceeding BlackRock’s rating of its U.S. S&P 500 fund,” the letter says. “As further evidence of the absurdity of BlackRock’s ESG ratings for its China funds, BlackRock publishes the same ESG letter grade for its all-China fund as for its U.S. small-cap stocks fund.”
The managers have until March 10 to reply to the claims.
In response to social media allegations by some attorneys general, BlackRock said: “You are wrong in at least three significant claims about our China disclosures, all of which are publicly available to you”.
But the latest US political assault on fund manager investment policies follows a string of state-based mandate cuts for BlackRock (and others) over ESG strategies.
Late last year, too, a group of 11 states led by Texas sued BlackRock, State Street and Vanguard, alleging the three largest fund managers in the world were acting as a “cartel to rig the coal market, artificially reduce the energy supply, and raise prices” via ESG climate investments.