Harvard endowment debate shows struggle of private equity funds in China


Thomas Derr, spokesman for the $40 billion Pennsylvania State Employees Retirement System, said he did not discuss or take a position regarding the reduction of investments in China. It has around 2% exposure to China.

Harvard declined to provide information on its share of investments in China.

Given the uncertainties in emerging markets, the Florida State Board of Directors has, for the time being, stopped funding new investment strategies in China as it continues to assess the risks involved. ensue, according to Kent Perez, Deputy Executive Director. The pension fund made this known at a public meeting in March, outlining actions taken following an investigation into its holdings in China earlier in 2022, Perez said.

The fund had less than 3% of its $253 billion in assets in January, which includes the Florida Retirement System, invested in China.

the Washington State Investment Board, which invests 3.5% of its $156 billion in Chinese assets, conducts periodic risk analysis, including China, as geopolitical issues receive particular attention. Staff will present their findings later this month, said Chris Phillips, a spokesman. “Emerging markets are often a natural part of the risk report,” Phillips said. “We spend a lot of time analyzing risk, but that rarely translates into a short-term change in investment strategy.”

The reduced block allocations come after many US pension funds were “tapped” in terms of capital capacity for new managers, one of the people said.

Still, some endowments and family office funds may still want to over-allocate in China, seeking healthcare-focused venture managers due to their outsized returns, the people said.

Michigan State University is not changing its strategy when it comes to China, which accounts for about 2% of its $4 billion endowment. He invested $50 million in a long-short hedge fund in China in late 2021.

“We’re not looking to take anything out,” said Phil Zecher, chief investment officer. “We are always concerned about governance issues wherever we invest, whether it is corporate governance in the United States or in the countries to which we are exposed.”

But alternative investors are shifting their preferences to other Asian markets, at least in the short term. A Preqin survey showed that half of 350 respondents saw Southeast Asia as the best opportunity within emerging markets at the end of last year, up from 37% a year earlier. The change reflects some investors’ delay in planned capital commitments in China, the research firm said.

Many global investors in 2021 have focused on “re-ups” – allocating to the same manager in previous rounds, and focusing on those with a geographic spread in Asia rather than a country-specific mandate, said the people. Blackstone raised $6.4 billion in Asia in January, with nearly 100% of investors in its first fund participating in the second capital pool.

So-called exits, or when private equity firms take out their investments, fell in the second half of last year to 30% of volume in the first six months of 2021, according to Bain. Only 35% of Chinese investment managers were confident in the country’s outlook, a sharply divergent view that could signal a fundamental shift in China’s performance in 2022, Bain said. This compares to over 60% in Asia as a whole.


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