Alan W. Dowd is a Senior Fellow with the American Security Council Foundation, where he writes on the full range of topics relating to national defense, foreign policy and international security. Dowd’s commentaries and essays have appeared in Policy Review, Parameters, Military Officer, The American Legion Magazine, The Journal of Diplomacy and International Relations, The Claremont Review of Books, World Politics Review, The Wall Street Journal Europe, The Jerusalem Post, The Financial Times Deutschland, The Washington Times, The Baltimore Sun, The Washington Examiner, The Detroit News, The Sacramento Bee, The Vancouver Sun, The National Post, The Landing Zone, Current, The World & I, The American Enterprise, Fraser Forum, American Outlook, The American and the online editions of Weekly Standard, National Review and American Interest. Beyond his work in opinion journalism, Dowd has served as an adjunct professor and university lecturer; congressional aide; and administrator, researcher and writer at leading think tanks, including the Hudson Institute, Sagamore Institute and Fraser Institute. An award-winning writer, Dowd has been interviewed by Fox News Channel, Cox News Service, The Washington Times, The National Post, the Australian Broadcasting Corporation and numerous radio programs across North America. In addition, his work has been quoted by and/or reprinted in The Guardian, CBS News, BBC News and the Council on Foreign Relations. Dowd holds degrees from Butler University and Indiana University. Follow him at twitter.com/alanwdowd.

ASCF News

Scott Tilley is a Senior Fellow at the American Security Council Foundation, where he writes the “Technical Power” column, focusing on the societal and national security implications of advanced technology in cybersecurity, space, and foreign relations.

He is an emeritus professor at the Florida Institute of Technology. Previously, he was with the University of California, Riverside, Carnegie Mellon University’s Software Engineering Institute, and IBM. His research and teaching were in the areas of computer science, software & systems engineering, educational technology, the design of communication, and business information systems.

He is president and founder of the Center for Technology & Society, president and co-founder of Big Data Florida, past president of INCOSE Space Coast, and a Space Coast Writers’ Guild Fellow.

He has authored over 150 academic papers and has published 28 books (technical and non-technical), most recently Systems Analysis & Design (Cengage, 2020), SPACE (Anthology Alliance, 2019), and Technical Justice (CTS Press, 2019). He wrote the “Technology Today” column for FLORIDA TODAY from 2010 to 2018.

He is a popular public speaker, having delivered numerous keynote presentations and “Tech Talks” for a general audience. Recent examples include the role of big data in the space program, a four-part series on machine learning, and a four-part series on fake news.

He holds a Ph.D. in computer science from the University of Victoria (1995).

Contact him at stilley@cts.today.

Underfunded and Under Pressure, U.S. Pensions to Keep Investing in China

Wednesday, February 24, 2021

Categories: ASCF News Emerging Threats Economic Security

Comments: 0

U.S. state pension funds that invested in Ant Group Co. were stung when the financial technology firm’s initial public offering was suddenly pulled on orders of China’s president. But few of these investors are swearing off Chinese private markets, where they still hope to reap big returns.

Shock waves rippled through the investment world when China halted the initial public offering of Ant, which would have been the world’s biggest. The decision was made by President Xi Jinping after controlling shareholder Jack Ma infuriated government leaders by criticizing government financial regulation in an October speech, The Wall Street Journal reported.

For the past several years, the retirement savings of America’s police, firefighters and teachers have increasingly found their way to private companies in China such as Ant. Anxious to meet ambitious return targets in a low-yield world, large North American pension funds have committed growing sums to both global private-equity managers active in China and managers local to China, according to pension officials and their advisers and investment reports.

This has contributed to a larger boom in Chinese deal making for U.S. institutional investors. Private-equity-backed deals of $300 million or more in China involving exclusively U.S.-based investment managers totaled nearly $13 billion between 2010 and 2019, according to Preqin data. Deal activity peaked in 2018 at $3.78 billion. For investors and investment managers world-wide in 2020, private-equity investment in internet and technology in China was $52 billion, according to consulting firm Bain & Co.

In the wake of the Ant decision, some of the appointed bureaucrats and local union leaders who make up state pension boards across the U.S. have found themselves increasingly fretting over the sensitivities of Chinese government officials. But so far, they have decided not to make any major changes.

“We expect a much higher return out of private markets and particularly venture capital,” said Andrew Junkin, chief investment officer of the Employees’ Retirement System of Rhode Island.

Mr. Junkin said the pension fund took the collapse of Ant’s IPO in stride. He said the fund’s exposure to Ant is “somewhere between negligible and extremely small” and that the fund assumes private-market investments in China carry a higher level of political and regulatory risk.

Still, international investors including pension funds are now in limbo as Ant and Mr. Ma attempt to win back favor with Chinese authorities. Private-equity managers favored by U.S. pension plans such as Silver Lake and Carlyle Group Inc. are among the global investment firms that provided more than $10 billion for Ant’s 2018 fundraising, agreeing to terms that limited their ability to cash out if the company didn’t end up going public, the Journal has reported.

That may have upset the projections of some pension funds planning to reinvest cash or shares they might receive in the aftermath of the IPO, said Ashby Monk, executive and research director of the Stanford Global Projects Center.

“There’d be a soft-Brexit scenario or a fast-Covid-recovery scenario,” Mr. Monk said. “But no investor I know of had a ’Ant-IPO-withdrawn-because-of-[Mr. Ma’s]-comments’ scenario.”

Pension plans and their advisers say any disruption will be minimal since the amount involved is such a small share of their portfolios.

For large U.S. pension plans relying on ambitious returns to fill massive shortfalls, it may be hard to avoid putting themselves somewhat at the mercy of Chinese regulators. State- and local-government retirement plans are roughly $4.3 trillion short of the $9.1 trillion they need to pay promised future retirement benefits, according to the Federal Reserve.

“From a broad level portfolio perspective, you almost have no choice but to think very seriously about going to parts of the world where there is a lot more growth,” Carlyle Group Chief Executive Kewsong Lee said at last month’s California State Teachers’ Retirement System board meeting when asked by Calstrs board Chairman Harry Keiley what role China should play in helping the fund meet its long-term return target of 7% a year.

Calstrs has a very small exposure to Ant, according to people familiar with the matter.

“China represents much larger economic potential and growth, relatively speaking, to the rest of the world,” Mr. Lee said.

That reality is pushing U.S. state and local pension officials to learn to live with the risks and uncertainties of Chinese private markets. At one major U.S. public pension fund with a small exposure to Ant through Silver Lake, two top officials told the Journal they found the cancellation of the Ant IPO worrisome because it seemed arbitrary and like a punishment, making such developments hard to plan for.

During the Calstrs meeting last month, Board Vice Chairwoman Sharon Hendricks said the Ant IPO collapse had left her wrestling with the conflicting regulatory and economic forces impacting Chinese companies.

“I’m still struggling with reconciling the tension of absolute control versus this entrepreneurial dynamic innovative spirit,” she said. “And yet it seems like we’re bullish on innovation in China.”

Photo: For the past several years, U.S. pension funds have more frequently invested in private companies in China such as Ant Group, based in Hangzhou. - ALY SONG/REUTERS

Link: Underfunded and Under Pressure, U.S. Pensions to Keep Investing in China - WSJ

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