Proposed legislation seeks to decouple huge pools of public money from Chinese market
By JACK STONE TRUITT, Nikkei staff writer
July 2, 2023
The Texas State Capitol. Texas' public education employee pension fund has slashed its investment in Chinese equities. © Reuters
NEW YORK -- U.S. public pension plans and universities are facing pressure to divest their portfolios from China amid tensions between Washington and Beijing, with billions of dollars at stake.
Proposed federal and state legislation takes aim at public money being used toward investment into China over fears about national security and whether American dollars should go to a country the U.S. has deemed its primary strategic competitor.
In May, a group of U.S. Senators led by Republican Marco Rubio reintroduced legislation which would ban the federal employee and military pension Thrift Savings Plan (TSP) -- the country's largest retirement plan of any kind with $892 billion in assets -- from investing in companies listed, based, or controlled by China, and any other "country of concern."
"Congress can't sit on the sidelines and allow the TSP board to fund Beijing's rise at the expense of our nation's future prosperity and national security interests," Rubio said in a statement when announcing the bill.
America's public sector retirement systems hold about $5.6 trillion in assets, according to Public Plans Data, an effort by the Center for Retirement Research at Boston College and the MissionSquare Research Institute. An average of 7% of this money is allocated to emerging markets equities, according to available funds data.
University endowment funds, which benefit from public funding and tax incentives, have also faced scrutiny over where they put their money.
Last year, Congressman Greg Murphy, a Republican representing North Carolina, introduced a bill that would punish university endowments larger than $1 billion with investments that fund Chinese companies on the U.S. government's sanctioned list of entities.
In April, Amnesty International USA issued a report on 10 of the largest university investment funds, giving seven of them a failing grade in conducting adequate human rights due diligence on their investments, such as checking whether they go to companies associated with Uyghur repression in Xinjiang.
Some pension funds have already made the decision to curtail or halt investment into China.
Last fall, Texas' public education employee pension fund decided to cut its allocation of Chinese equities in half, reducing its investment into China to about 1.5% of its nearly $200 billion in assets.
"Changing the benchmark improves the diversification of the trust's Emerging Markets allocation and the trust's broader asset allocation," the Teacher Retirement System of Texas' policy committee said at the time.
This month, the University of Chicago and the Robert Woods Johnson Foundation (RWJF) -- a large public health philanthropy organization -- were halting new China investments, technology industry-focused business publication The Information reports.
A spokesperson from the University of Chicago declined to comment on any future investment, while the RWJF did not respond when reached for comment.
CalSTRS, California's public education pension fund and one of the largest in the U.S., is in the process of selecting a new manager for its China equities pool, where it will take a hard look at its investment strategy under which it had about $3.7 billion invested as of the end of 2022.
"Placement in this pool does not guarantee a manager will receive an allocation; there could be no allocation. Actual allocation size would be determined based on the needs of the CalSTRS Global Equity Portfolio," a CalSTRS spokesperson told Nikkei in a statement.
Pension funds slowing their investment in China have not been limited to the U.S.
In June, the Financial Times reported that one of Canada's largest pensions funds, the $300 billion Caisse de depot et placement du Quebec (CDPQ), would halt China deals and close its Shanghai office this year. That followed the $182 billion Ontario Teachers' Pension Plan's move to close its China equity team in Hong Kong in April, and the $158 billion British Columbia Investment Management fund deciding to cut its China exposure by roughly 15%, amid strained relations between China and Canada.
All three funds cited rising geopolitical risk due to tensions between China and the U.S., as well as the ongoing regulatory shift in China led by Xi Jinping's 'Common Prosperity' push.