As Texas lawmakers are calling for legislation that will divest state pension funds from Russia, there is still approximately $10 billion from state pension funds invested in China.
The Houston Chronicle reports that Texas State Sen. Paul Bettencourt (R-Houston) has written a letter to Texas Lt. Gov. Dan Patrick to request an interim charge order that would allow legislators to research and consider divesting state pension funds currently kept in Russian investments. All 31 Texas state senators of both parties signed the letter.
"The moral and financial issues here are two sides to the same coin," Bettencourt said, according to the Houston Chronicle. "We can’t sit back and watch the Russian invasion of Ukraine and do nothing. We’re not going to tolerate any association from the state of Texas with a dictatorship that’s invading a democratically elected government. It just can’t be tolerated, and the risk is too high to taxpayers."
A spokeswoman for the governor, Nan Tolson, said Texas Gov. Greg Abbott was actively dissuading Texas companies from doing business with firms associated with oppressive governments, according to the Austin Journal. In 2021, Abbott signed a law designating China as a "hostile nation" and the attorney general compared the country to "1930s Germany."
"Gov. Abbott proudly signed Senate Bill 2116 (the Lone Star Infrastructure Protection Act) into law during the 87th legislative session, which prohibits Texas businesses and governments from contracting with entities controlled by the governments of China, Iran, North Korea and Russia," Tolson told the Austin Journal. "Gov. Abbott will continue to work with the legislature to determine more ways to best protect both the overall security and prosperity of Texas as well as the retirement accounts of those who worked so hard for these benefits."
Bettencourt said it's not just human rights, but how individuals or companies are treated.
"It’s not the same governmental structure that we’re used to, and the rules can change rapidly, as we’ve seen, for other companies and for investments. So that’s one of the downsides of investing in an environment that does not have a long history of having a stable environment for capital," Bettencourt said, according to San Antonio Express-News.
Bettencourt added that he expects the legislature to consider divesting from China.
Despite this anti-China approach from its state leaders, the state still has at least $9 billion invested in the country. The Austin Journal reported seven of Texas' pension funds are invested in Chinese companies, the majority of that share invested in large companies like Tencent and Alibaba.
“You make these huge investments in the Chinese economy even though you face not only economic risk, you face a lot of political risk doing that,” John Diamond, director of the Center for Public Finance at Rice’s Baker Institute, told the San Antonio Express. “It doesn’t really make sense. It’s kind of like talking out of both sides of your mouth. On one hand, you say you’re going to be tough with China ... but then, when it comes to investments and where to put our money, then we are — or at least the pension funds — are very quick to chase returns.”
The $9.1 billion estimate is likely to be very conservative, as it only includes state-level funds and not the 92 local funds across the state, the Austin Journal reported.
“The Legislature, in its wisdom, has legislated what we must be transparent about and what we must keep confidential. They made that trade-off because they recognize a balance must exist, and they want the funds to achieve their assumed rate of return, which they likely would not if they were prohibited from investing in professionally managed private funds,” Britt Harris, a former investment officer with TRS, told the San Antonio Express.
Over the last 30 years, Texas increased investment in China as a result of policies that moved pension funds from safer investments to higher risk and higher return ventures.
“The thought process is that even the U.S. will not be the best performing market year in and year out, and holding a global portfolio will over time be more efficient and less dependent on any one market,” Harris said, according to San Antonio Express. “Over the last decade, that assumption has been incorrect as the U.S. markets have generally led the world year in and year out. That may be about to change.”
Tim Lee, president of the Retired Teachers Association Board, believes that financial decisions should be made by experts at the pension fund, according to the San Antonio Express.
“I think it’s worth asking those questions sometimes. But if elected officials become too involved in how pension funds make those decisions, the slippery slope is elected officials saying we were successful with ‘x,’ now you should do ‘y,’” Lee said.