APG, one of the world’s largest asset managers, said its pension fund clients were shying away from China as investors fretted over rising geopolitical risks.
The Netherlands-based group, which manages about 532 billion euros in Dutch pension scheme assets and serves about 4.8 million participants, is an established investor in China and opened an office in Hong Kong about 15 years ago.
However, Thijs Knaap, chief economist at APG Asset Management, told the Financial Times that concerns about China among its pension fund clients are rising.
“Five years ago, we’d say ‘China, it’s growing fast and opening up,’ and the foundation said ‘yes, take our money there. . . There’s no discussion,'” Knapp said.
“But it has become harder to sell to our stakeholders. They are very aware of the risks they face. There is a very real geopolitical risk added to this proposal.”
“We’re still very exposed at this point. We have real estate, equity, debt, and we have significant investments in China,” he added. APG did not disclose the total value of its exposure to China.
The comments from one of Europe’s most important investors come as other large institutional pension funds pull out of China amid heightened concerns over tensions with the United States.
Last week, the Financial Times reported that C$400 billion ($295 billion) global investment group Savings Bank of Quebec had halted private transactions in China and would close its Shanghai office.
Singapore’s sovereign wealth fund GIC has slowed the pace of direct investments in China, while the Ontario Teachers’ Pension Plan said in January it had suspended future direct investments in China.
APG said it was discussing with clients the regions and asset classes they wish to invest in, including China.
“On the one hand, I can’t seem to imagine that we’re going to exit such a large part of the world economy,” Knapp said. “(But) at the same time, we’re definitely seeing some dark clouds around China.”
He added: “We’ve always looked at China as a place where we have to do some work. We can’t just put our money there and expect everything to be ok.”
Meanwhile, European markets have become more attractive to investors – the Europe Stoxx 600 is up more than 7% so far this year, partly because the region managed to stave off an energy crisis during the winter.
“Five years ago, when we were looking for investment opportunities with negative interest rates in Europe, the stock market was very highly valued . . . it looked very unattractive, and that prompted our pension clients to look further afield,” He said.
“A lot of money is going out of Europe, into the US or Asia, but we’ve also been very busy putting money into alternative investments or new investment classes.”
However, he added: “The trends we’ve seen over the past five years are coming to an end. We’re no longer taking money out of Europe or exploring entirely new asset classes. Expected returns in traditional asset classes and traditional regions have become better.”
Knapp said APG’s pension clients had their own risk policies and whether they thought it was “better to keep the lines open” by continuing to invest in a region.