US pension funds write to London Stock Exchange Group over SpaceX fast-tracking
Pension funds worth around $600bn have written to FTSE Russell’s parent company expressing concerns about the relaxing of rules which allow SpaceX to get fast track access into its indices — and therefore into passive funds (Spencer Platt/Getty Images)
A day before the blockbuster SpaceX IPO, a group of US pension funds worth around $600bn came together in a sort of kumbaya moment and sent London Stock Exchange Group – FTSE Russell’s parent company – a letter expressing their concerns about the relaxing of rules that would fast-track SpaceX into passive funds.
Signed by the comptrollers of Maryland, New York City and New York State as well as the treasurer of Illinois, the letter outlines concerns with changes to FTSE Russell indices which would allow fast-tracking companies which have recently listed “after just five trading days”.
They request that LSEG pauses implementation of this rule until a formal investor impact analysis is conducted, reviewed by FTSE Russell’s governance board and made public.
The signatories noted that Nasdaq and Morningstar had already lowered their standards and it said FTSE Russell doing likewise would represent a “race to the bottom”.
(Morningstar said its fast-tracking rules enable it “to accurately and efficiently reflect the US market investable universe by balancing market representation with trading costs".)
“Each provider’s decision to relax its standards makes it easier for the next provider to do the same, and the aggregate effect is that trillions of dollars in passive assets are forced to purchase securities that would not have qualified under the rules that existed six months earlier,” according to the letter.
The letter points out that the S&P Dow Jones Indices “reached the opposite conclusion…[and] declined to fast-track the very same IPOs”.
“Every future mega-IPO will undoubtedly cite SpaceX precedent to demand identical treatment,” the letter reads.
This last point is particularly pertinent given the looming IPOs of Anthropic and OpenAI.
What did the LSEG have to say for itself? Well when AOX asked if it replied to the letter it said: “Yes, we responded to the letter. FTSE Russell always endeavours to respond to stakeholder queries, but we do not make that correspondence public.”
But AOX was able to view the letter after some sleuthing.
Signed by the FTSE Russell’s chief executive Fiona Bassett the response laid out that during a consultation process “respondents were broadly supportive of introducing a fast entry rule for the Russell US Equity Indexes”.
It also said that the five-day period was “broadly endorsed” by both consultation participants and the FTSE Russell’s advisory committees as an appropriate window.
Bassett said all FTSE Russell indices are constructed in a “robust and transparent” manner and that it operates independently of other index providers and potential index constituents.
In short, the request for a pause in implementation has been politely turned down.