Some 17 state attorneys general — led by Montana Attorney General Austin Knudsen — are cracking down on BlackRock, State Street, Invesco, J.P. Morgan, Goldman Sachs and Morgan Stanley for what the attorneys general say are misrepresentations about their China funds.
In a letter sent to the six asset managers Feb. 6, the coalition accuses the money managers of omitting essential disclosures regarding China’s official status as a foreign adversary of the U.S. and the likelihood of China invading Taiwan. The attorneys general also criticize the firms for material omissions or misrepresentations relating to, among other things, China’s property ownership and market reforms, and the country’s practice of installing Chinese Communist Party “cells” in private companies.
“These misleading or omitted disclosures, combined with the underlying activity of the CCP to interfere with and obfuscate its markets, appear to make it extraordinarily difficult, if not impossible, for states, 457 or 401(k) providers, or other fiduciaries to fulfill their duty of investigation when they purchase funds issued by BlackRock or the other asset managers with exposure to Chinese investments,” the attorneys general write in the 18-page letter.
The attorneys general take particular aim at BlackRock, singling out the firm more than the others on every grievance, including what they see as misrepresentations regarding their environmental, social and governance funds.
The attorneys general, for example, attack BlackRock for its “ESG Aware” emerging markets fund, noting that 20% of the fund consists of Chinese investments, which they contend conflicts with the fund’s stated ESG representations.
“Shockingly, this fund has an ‘AA’ ESG fund rating, exceeding BlackRock’s rating of its U.S. S&P 500 fund,” they write. “Having an ‘ESG Aware’ fund that supports China and the CCP is misleading, given that China flagrantly violates ESG principles, and Chinese companies are increasingly bound to the CCP and the Chinese military.”
BlackRock fired back on social media. “You are wrong in at least three significant claims about our China disclosures, all of which are publicly available to you,” the firm wrote on X, in response to Oklahoma Attorney General Gentner Drummond and Idaho Attorney General Raul Labrador.
BlackRock noted that it was clear about the risk of private property ownership in China and about China’s auditing practices.
“The Chinese government continues to maintain a major role in economic policy making, and investing in China involves risks of losses due to expropriation, nationalization, confiscation of assets and property, and the imposition of restrictions on foreign investments and on repatriation of capital invested,” BlackRock said.
Invesco declined to comment on the matter. None of the other firms responded to a request for comment.
The firms have until March 10 to respond to a list of questions.
"China is a foreign adversary of the United States, threatens to invade Taiwan at any time, engages in forced labor and genocide, and that barely scratches the surface of their market risk and aggression against our country," Knudsen said in a news release Feb. 6. "It is very concerning that asset managers are withholding these facts, and the significant risk Chinese investments pose to their investors."
The letter comes amid growing pressure on public pension funds to divest from China funds. In November, 20 state financial officers issued a joint statement calling on public pension fund fiduciaries to divest from China. Texas Gov. Greg Abbott in November also directed state agencies to divest from China as soon as possible. And Oklahoma Gov. Kevin Stitt issued an executive order in June directing the state’s retirement systems with investments in China and other countries considered foreign foes — namely Cuba, Iran, North Korea, Russia and Venezuela — to develop divestment plans and submit them to the governor.
