In focus: Canadian pensions' China exposure under scrutiny as tensions grow
As political tension between Beijing and Ottawa escalates, leaders of two of Canada’s largest public pension funds told a parliamentary committee of the Canadian government they have paused direct investments in China.
Meanwhile, executives from three other funds explained why they were not yet prepared to do the same.
Testifying to the House of Commons Special Committee on the Canada-People's Republic of China Relationship on May 8, Stephen McLennan, executive managing director of the Ontario Teachers' Pension Plan, said the C$247 billion ($183 billion) pension fund had scaled down its portfolio allocation to China to just 2.3%.
Its property investment subsidiary Cadillac Fairview has also put a pause on further investment in the region.
"In recent months, as we assess the changing post-Covid economic environment, recent regulatory changes in China, and the continued deterioration of US-China and Canada-China relations, we reduced our investment activities in China and paused further private investments," McLennan told the committee.
"We will continue to responsibly manage our existing investments in the country, as well as in other countries in the region."
Last year, the Ontario Teachers joined a $505 million fundraising round for Asia Pacific data centre platform Princeton Digital Group, with that firm listing China as among its target markets, alongside India and Singapore.
Through Cadillac Fairview, the pension fund committed $400 million in 2021 to Hines Asia Property Partners with US developer Hines, citing China as one of the markets targeted by its Asia investment vehicle.
Meanwhile, Daniel Garant, executive vice-president and global head of public markets at British Columbia Investment Management Corp, which invests in real estate through its QuadReal Property Group, told the same panel that the C$211 billion ($156 billion) fund had also decided to pause further investments in China.
Garant did not elaborate further on BCI’s portfolio allocation to China but faced questions from policymakers about the firm’s investment in Hikvision through an index fund. The China video camera maker has already been accused of providing surveillance tools used for facial recognition for Uyghurs and other ethnic groups in Xinjiang.
RETURNS AND DIVERSIFICATION
Meanwhile, representatives from three of Canada’s largest pension fund managers - CPP Investments, Caisse de dépôt et placement du Québec (CDPQ) and PSP Investments - told the committee that despite notable risks, their funds were not prepared to take similar action with China.
CPP Investments currently holds 9.8% of its C$500 billion ($370 billion) in assets in China, and see the market as too big to ignore.
“Exposing the fund to Chinese markets gives us access to one of the world’s largest and fastest-growing economies,” Michel Leduc, senior managing director and global head of public and corporate affairs for CPP Investments told the committee.
Despite Leduc’s praise for the benefits of the Chinese market, a source close to the matter told AsianInvestor that CPP Investments is acutely aware of the significant geopolitical risks and is monitoring the situation closely.
CDPQ, Canada’s second-largest pension fund with C$402 billion ($300 billion) in AUM, also pointed to the benefits of Chinese investments while vowing to manage risk.
CDPQ which announced in March the closure of its Shanghai office by the end of the year, did not address this subject during its appearance before the Special Committee.
The Quebec-based pension fund manager opened its first Chinese office in 2009. After the closure of Shanghai, activities will be managed from Singapore.
China represents 20% of the global economy and has been responsible for a quarter of global economic growth over the past decade, explained Vincent Delisle, senior vice-president and head, liquid markets, at CDPQ told members of the special committee.
“It contributes to our diversification and to the long-term performance of our depositors,” said Delisle.
Delisle said that the environment investors must navigate is complex due to significant geopolitical tensions, and the fund is taking a cautious and measured approach.
“Our investments in China are focused on liquid assets, with the associated ability to adjust our holdings based on the market environment and risks that may emerge over time,” a spokesperson for CDPQ told AsianInvestor in an emailed statement.
PSP Investments has about 3% of its C$230.5 billion in total assets currently invested in the Chinese economy.
Eduard van Gelderen, the organisation’s chief investment officer, told the committee this was a small amount relative to China’s global economic output.
None of the three major funds, which between them manage nearly C$1 trillion, has announced a complete withdrawal from China or even a reduction of their exposure to the Chinese market.
GROWING TENSIONS
The testimony by the Canadian pension funds to the committee on May 8 came just hours after the Canadian government declared a Chinese diplomat persona non grata for involvement in a scheme to intimidate the Hong Kong relatives of one of the committee’s vice chairs.
Canada expelled Chinese diplomat Zhao Wei on allegations that he attempted to target the family of Michael Chong, a Canadian lawmaker who has been outspoken on China’s treatment of the Uyghur Muslim minority.
“Canada has decided to declare persona non grata Mr Zhao Wei,” the Canadian foreign minister, Mélanie Joly, said in a statement. “The decision has been taken after careful consideration of all factors at play.”
Responding a day later, China ordered the removal of Jennifer Lynn Lalonde, Canada's diplomat in its Shanghai Consulate.
These latest political actions follow a number of reports by Canadian media outlets, citing anonymous intelligence sources, that have alleged schemes run by the Chinese government to interfere in Canada’s last two elections, allegations strongly denied by Beijing.