New York City’s comptroller is asking three major index providers to bar Saudi Arabia from their global emerging markets indexes following the allegations of the kingdom’s involvement in the murder of journalist Jamal Khashoggi.
Stringer sent letters to the heads of FTSE Russell, MSCI, and the S&P Dow Jones Indices on Wednesday, demanding that they not track Saudi companies in their emerging market indexes. The head of the $197.8 billion New York City pension funds said such investments were “out of the scope of suitable markets.”
All three organizations had been poised to include Saudi stocks in 2019.
He said all five of the city’s retirement systems have no individual investments in individual stocks from the kingdom. But each fund (the New York City Employees’ Retirement System, Teachers’ Retirement System for the City of New York, New York City Police Pension Fund, New York City Fire Pension Fund, and the New York City Board of Education Retirement System) has heavy concentrations in indexes. Thus, they are automatically invested in whatever company an index covers, whether they like it or not.
Pension funds and asset managers would rather avoid controversial investments, such as those deemed out of step with environmental, social, and governmental (ESG) sensibilities. BlackRock, another large institution, has been dealing with a similar situation over investing in indexes that include fossil fuels companies.
The city pension funds have a total of $11.45 billion in passive international stocks and $5.58 billion in passive emerging markets strategies.
“At the heart of every market in every country must be a financial system willing to provide necessary oversight and stability,” Stringer wrote. “In order for these markets to prosper, there must be accountability.”
Stringer wrote that Saudi Arabia has “long demonstrated a disdain for the rule of law and international norms of due process and human rights.”
At this point, no Saudi companies are listed in any of the three EM indexes. Earlier this year, MSCI, FTSE Russell, and S&P announced plans to add Saudi stocks in 2019.
Had it not been for the recent allegations of Khashoggi’s death, the institution may not have opposed Saudi Arabia’s inclusion to the benchmarks.
The self-exiled journalist was critical of the kingdom in his reporting, but went to the nation’s consulate in Istanbul to obtain a certificate confirming he had divorced from his ex-wife so he could marry his Turkish fiancée. He appeared at the consulate on October 2.
Turkish officials questioned Saudi claims that the writer had left the consulate unharmed. The Turks contended Khashoggi had been murdered by a 15-man hit squad, and claimed they have recordings of the incident. After the kingdom’s repeated denials, and a lack of evidence regarding the journalist’s departure, it recently admitted he was killed in a “rogue operation” unbeknownst to its Saudi government.
Institutional investors’ immediate reaction to the incident had been to pull out of the Future Investment Conference, Saudi Arabia’s flagship gathering, often referred to as “Davos in the Desert.” Those that did attend were constantly checking their phones for news regarding the writer’s disappearance.
“The disturbing murder of a journalist by Saudi Arabia demonstrates a flagrant disregard for morality as well as the rule of law. It is clear from both an ethical and fiduciary standpoint that New York City pension funds should not be invested in Saudi Arabia,” Stringer told CIO in an emailed statement. “To protect the retirement security of hundreds of thousands of city workers and retirees, the markets our pensions are exposed to must be financially sound and able to provide the oversight necessary for long-term stability—which is a standard Saudi Arabia has demonstrated they can’t meet.”
FTSE Russell could not be reached for comment.
MSCI and S&P Dow Jones declined to comment.
Tags: Comptroller Scott Stringer, FTSE Russell, MSCI, S&P Dow Jones, Saudi Arabia