New York City Comptroller Scott M. Stringer is calling on major index providers to reconsider their decisions to include Saudi Arabia in global emerging markets indexes, in light of allegations of the country's involvement in the murder of a journalist.
In letters to Mark Makepeace, CEO of FTSE Russell; Henry Fernandez, chairman, CEO, president and director of MSCI; and Alex Matturri, CEO of S&P Dow Jones Indices, Mr. Stringer expressed concern that Saudi Arabia's inclusion would expose the New York City pension funds and other investors to "investments out of the scope of suitable markets."
Mr. Stringer, fiduciary for the more than $195 billion New York City Retirement Systems, said in the letters that the funds do not now invest in Saudi Arabia.
The five pension funds that make up the New York City Retirement Systems are heavily indexed. That would mean the New York City funds and other passive investors automatically would invest in Saudi Arabian equities should the country be added to the indexes. As of Sept. 30, 2017, the retirement systems reported a total of $11.45 billion in passively managed international equities, with $5.58 billion in passive emerging markets strategies, Pensions & Investments data show.
MSCI said in June it would add Saudi Arabia to its emerging markets index in June 2019, with a 2.6% weighting. FTSE Russell said in March that Saudi Arabian stocks would be included in stages in its emerging markets indexes starting March 2019. The country will account for about 2.7% of the index. S&P-DJI said in July it will change Saudi Arabia's country classification to emerging market beginning in March 2019.
Mr. Stringer's letters, dated Oct. 24, state that the kingdom has been implicated in the disappearance of journalist Jamal Khashoggi.
"At the heart of every market in every country must be a financial system willing to provide necessary oversight and stability," the letters state. "In order for these markets to prosper, there must be accountability. Saudi Arabia has long demonstrated a disdain for the rule of law and international norms of due process and human rights. As a leading provider of (environmental, social and governance) analysis and research, these are risks that" each index provider "should well understand."
A separate comment from Mr. Stringer, provided by the spokesperson, said: "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. 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."
A spokesman for MSCI and a spokeswoman for S&P declined to comment. A spokesman for FTSE Russell could not immediately be reached for comment.