The Florida State Board of Administration, the $250 billion public retirement system, announced that it has, for now, stopped funding new investment strategies in China as it continues to assess the risks. If other allocators follow Florida’s move, it could rattle U.S. and other asset managers that have significant exposure to China through their funds or have invested heavily to set up offices in the country.
The ban, which came at a meeting late last month, would include all Florida Retirement System investments. In the meeting, which was led by Governor Ron DeSantis, E. Lamar Taylor, interim chief investment officer, said the decision was made after conversations with the board in December when the trustees instructed SBA to conduct a survey of its holdings in China.
“China is part of our emerging market strategies, which we’ve been involved [with] since the mid-1990s,” Taylor said.
Taylor said the survey showed that the retirement systems’ exposure to Chinese investments remained “relatively low” at 2.8 percent of the total.
Back in December, Taylor said the board of trustees discussed the increasing risks of investments in China, including the Chinese government’s “somewhat erratic responses” to issues like for-profit education and technology. Taylor also cited China’s stressed property markets and Russia’s invasion of Ukraine as additional downside risks.
“In light of these increasing risks and uncertainty, for the moment, we have stopped funding new investment strategies in China and in emerging markets,” Taylor said.
In the meeting, Taylor said it’s impossible to talk about the risks of investing in the emerging markets without first addressing the Russia-Ukraine conflict. Before the war, Taylor said SBA held about $300 million in Russian securities, or about .15 percent of the total. Since Russia’s invasion of Ukraine, Taylor said that exposure has decreased significantly, but did not provide a specific figure.
“Our expectation is that our managers will continue to act as fiduciaries and will continue to assess the situation on a facts and circumstances basis as things evolve,” Taylor said.
As liquidity re-enters this area of the market, Taylor said he expects some managers to hold their positions in Russia, while other managers exit. Unlike many institutional investors, Florida SBA has not said it will divest from Russia. Taylor said that if the retirement system was forced to do that, it would only result in a “realized loss.”
DeSantis said the legislature plans to look at emerging markets investments overall from a statutory perspective.
“Particularly with the incoming speaker, there’s going to be an appetite to look to see if we can, by statute, target our investments away from some of the parts of the world that are hostile to American interests,” DeSantis said.
Florida SBA declined Institutional Investor ’s request for comment.