The Hindu Business Line : CalPERS to invest in select Chinese stocks

Two and half years after it added India to its permissible list of emerging equity markets, CalPERS, the largest US pension fund, has agreed to bring China into its fold. The decision is expected to lead to an even finer division of its total allocation for emerging economies.

CalPERS (or California Public Employees' Retirement System) will allow buying of stocks in select Chinese companies, following a modification in its `permissible equity markets policy.'

Its emerging markets managers will start doing so on a case-to-case basis from January 1, 2007.

In a decision that was then followed closely in the Indian market, CalPERS had in mid-2004 proposed to cover India (along with Peru and The Philippines) as the country met its standards for investment. This was done after its consultants were instructed to re-examine new findings about these nations in terms of transparency, political stability and labour practices.

India had moved up to a global level for trade settlement - that is, settlement one day after the trade date.

The inclusion of the three countries brought them up to the ranks of Brazil, Chile, Mexico, South Korea, Taiwan etc. China (as well as several other countries like Russia, Pakistan, Morocco and Thailand) was not on the select list at that point.

A CalPERS release posted on its Web page referred to its policy to prohibit public equity investments in emerging market countries that have failed to meet an "annually required composite threshold score based on country and market criteria."

The relevant factors include market liquidity and volatility, investor protection and settlement proficiency/transaction costs.

CalPERS, which in mid-2004 had assets totalling $166 billion, then had roughly $2 billion invested in emerging markets.

It provides retirement and health benefits to 1.4 million employees and their family members.

The CalPERS emerging markets portfolio has more than doubled to $4.8 billion. Its asset base has also grown and stands at over $225 billion. About 1.5 million people are now covered.

Its prohibited list still has names like Colombia, Morocco, Pakistan, Russia and Venezuela.

Companies qualify for investment by complying with the pension fund's permissible market guidelines and the United Nations Principles for Responsible Investment, it is stated.

Frowns on Sudan link

Observers may recall that CalPERS had earlier this year decided to ban investment in nine companies tied to Sudan, following what it said was a `Sudan Position Statement.' These included Indian names - BHEL, ONGC and Videocon Industries.

The pension fund attributed its decision to the "genocide" that was happening in that African country, and the resultant violation of human rights.

CalPERS had also joined other parties, including the New York state comptroller's office, to ask certain companies to disclose their business activities in Sudan. These included such names as Alstom SA, Reliance Industries, Rolls-Royce Group Plc, Sclumberger Ltd and Vodafone Group Plc.

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