Texas Gov. Greg Abbott has directed all state agencies to divest from investments in China.
In a Nov. 21 letter to agencies, Abbott said he is directing the agencies to divest because the Chinese Communist Party’s “belligerent actions across the Southeastern Pacific region and the world have increased instability and financial risk to the State holding investments in China.”
He also cited what he believes is the likelihood of financial risk rising further because “Chinese aggression against the United States and its allies seems likely to continue.”
The largest pension fund in Texas has already taken steps to reduce its exposure to China via a strategic asset allocation study earlier this year, citing geopolitical concerns. At its July 19 meeting, the board of the $202 billion Texas Teacher Retirement System, Austin, changed the benchmark for its overall public equity portfolio to the MSCI ACWI IMI ex-China/Hong Kong index.
The removal of China and Hong Kong from the pension fund’s benchmark was the completion of a process begun in 2022 when the pension fund cuts its exposure to China and Hong Kong by 50%.
“It really came down to the objectives of the economy there and whether the economy was prioritizing allowing a reasonable return on public stock investments. We’ve just noticed over time that it has become difficult,” said Jase Auby, chief investment officer, in a Sept. 26 interview.
The removal of China and Hong Kong from the pension fund’s benchmark, however, did not strictly prohibit investments in China. TRS spokesman Rob Maxwell could not immediately provide comment.
Letter to pension funds, endowments
In his letter, Abbott also said he has directed the University of Texas/Texas A&M Investment Management Co. to divest from China earlier this year. Richard Hall, president, CEO and CIO of UTIMCO, which oversees the universities’ $36.5 billion Permanent University Fund and $23.5 billion Long Term Fund, could not be immediately reached for comment.
Robert Borden, CEO and CIO of the $56 billion Texas Permanent School Fund, Austin, said in a webcast of the fund’s Nov. 21 board meeting, that they will be giving a formal response to the governor, whose staff has informed him needs to be send by the end of the current legislative session, “so we don’t have a fire drill on any of this."
“We have kind of come out in the lead here in solving this,” said Borden at the meeting. “One of the things we did in February was to eliminate our allocations altogether to emerging markets because we didn’t think the risk-return proposition was attractive enough to warrant (the investment), so we have already eliminated all our liquid positions in these countries this year.”
In the meeting, Borden was referring both to China and Iran. He noted that the permanent school fund does have about $700 million in investments in China, mostly in legacy private equity commitments which will be rolling out over the next few years.
“We’re not going to have a whole lot of explaining to do or a whole lot of changes to what we’re doing to comport with what the governor’s message and intent is,” said Borden.
Borden could not be immediately reached for further comment.
