In Focus: US state pension funds' continue to shed China exposure
The Kansas Public Employees Retirement System (KPERS) has completed a nearly $300 million divestment from Chinese securities, while Texas has ordered its state agencies to exit Chinese investments completely, marking the latest wave of US pension funds reducing their China exposure.
"KPERS divested 12 securities from 10 companies, a total of $294 million, to comply with the legislation," a spokesperson from the fund told AsianInvestor.
The Kansas divestment, representing approximately 1% of the fund's total investments, follows the state's Countries of Concern Divestment Act that took effect in July 2023.
The move cost the state $635,000 in liquidation expenses, according to Bruce Fink, KPERS' chief investment officer.
In Texas, Governor Greg Abbott issued a stark directive in November ordering state agencies to halt Chinese investments and liquidate existing holdings.
"I direct Texas investing entities that you are prohibited from making any new investments of state funds in China,” Abbott wrote in his letter to state agencies.
“To the extent you have any current investments in China, you are required to divest at the first available opportunity," he added, citing "belligerent actions" of China's ruling Communist Party as increasing risks to Texas' investments.
The directive affects major state funds including the Teacher Retirement System of Texas, which manages $210.5 billion and holds approximately $1.4 billion in Chinese yuan and Hong Kong dollar assets.
Notable holdings also include a $385 million position in Tencent Holdings.
GROWING TREND
The divestment wave has gained momentum across multiple states, with Indiana, Florida, Missouri, and Oklahoma implementing similar measures over the past year.
Indiana State Senator Chris Garten, who authored his state's bill, told Politico in July that the issue transcended politics, emphasising the need for unified action against perceived threats from the Chinese Communist Party.
Also read: In focus: US firms decouple China operations amid geopolitical tension
Missouri State Treasurer Vivek Malek, who spearheaded his state's exit from Chinese investments, told the media the move was largely defensive, citing concerns about potential losses similar to those experienced with Russian investments following the Ukraine invasion.
Meanwhile in Oklahoma, Governor Kevin Stitt told reporters his measures aimed to shield state tax dollars from Chinese influence.
Stitt emphasised his focus on protecting state pension exposure to potential geopolitical risks.
State pension funds typically held between 1% to 5% of their assets in Chinese investments, with total investments reaching $68 billion between 2021 and 2023.
DRIVING FACTORS
The reasons cited by state officials for this allocation shift include national security concerns, particularly regarding potential conflict in the Taiwan Strait.
The experience of frozen Russian assets following the Ukraine invasion has also been referenced by state pension administrators as they reassess their exposure to geopolitical risks.
Legislative pressure at both state and federal levels has intensified, while China's recent economic challenges and stock market underperformance in the first half of the year have added some financial justification to these moves.
Chinese markets have shown sensitivity to these developments, with the Shanghai Composite Index, China's main stock market benchmark, experiencing notable declines following major divestment announcements.
As more state pension funds consider similar moves, the trend could have broader implications for global capital flows and US-China financial relations.
According to Future Union, a nonprofit tracking institutional investments in China, US public pension funds invested more than $68 billion in China and Hong Kong in the three years to June 2023.
Their data shows that 29 out of 74 major US pension funds made investments in China in the year to June 2023.