BlackRock Inc (NYSE: BLK) and MSCI Inc (NYSE: MSCI) found themselves on the hot seat on Tuesday, under scrutiny from a U.S. Congressional committee.
The committee is investigating BlackRock and MSCI for allegedly middle-manning investments to Chinese companies that have been accused of human rights violations or aiding China's military, the Wall Street Journal reported.
The House Select Committee on the Chinese Communist Party is checking to see how American funds are channeled into Chinese ventures, potentially propping up some less-than-savory actors on the global stage
BlackRock, the world's largest asset manager with over $9 trillion in managed assets, is in the spotlight for investing over $429 million in controversial Chinese companies across five funds with the help of MSCI - the influential stock-market-index compiler - which crafted investment portfolios filled with Chinese stocks.
Both firms are, in essence, accused of turning a blind eye to the ethical and security implications of their actions. "Massive flows of American capital" are ending up in the pockets of Chinese entities, in turn escalating the national security threat and undermining American values, the committee's letters allege, according to the WSJ.
The inquiry will require sifting through international finance, where passive investment through index funds makes it easy for firms like BlackRock to distance themselves from the activities of the companies they invest in.
This isn't the first time the panel targeted American capital flow into China, WSJ noted, as it's been examining U.S. venture-capital firms funding Chinese tech startups. Now, the panel's lens is broadening to asset managers and index compilers who have a crucial role in directing Americans' retirement savings.
The Chinese response? A representative from the Chinese Embassy said that politicizing economic and trade issues goes against market economy principles.
Meanwhile, BlackRock engaged the committee directly to clear the air, while MSCI began reviewing the committee's request, the WSJ reported.