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USA government's widened blacklist on Chinese tech companies prompts pension funds to monitor development

Author: Svea Herbst-Bayliss and Tim McLaughlin, Reuters, Published on: 17 October 2019

“U.S. pension funds took positions in blacklisted Chinese surveillance company”, 15 October 2019

Some of the biggest public pensions funds in the United States have invested in one of the world’s largest purveyors of video surveillance systems that the U.S. government claims are used in wide-scale repression of the Muslim population of western China.

The Trump administration’s decision to put the company, Hangzhou Hikvision Digital Technology Co… on a blacklist… has prompted at least two of the pension plans to say they are reviewing or monitoring that development…

“We are tracking the situation given this new development with the Department of Commerce’s announcement,” a spokeswoman for the California State Teachers’ Retirement System (CalSTRS) said in an email…

The New York State Teachers Retirement System also owned Hikvision…

“Our holdings are primarily held according to their weights in passive portfolios matching the MSCI ACWI ex-U.S. index, our policy benchmark. We are monitoring the situation,” said a spokesman for the teachers’ fund…

Hikvision’s General Manager Hu Yangzhong told Reuters… it has been talking to the U.S. government about Xinjiang and has hired human rights lawyers to defend itself against the blacklisting.

A spokeswoman for law firm Sidley Austin LLP, which has lobbied for Hikvision this year, declined to comment.

Another major fund investing in Hikvision shares is the Florida Retirement System (FRS)…

A spokesman for the fund said it was working closely with external money managers “related to the issue in order to meet all regulatory and fiduciary requirements.”…

Beijing denies any mistreatment of people at the camps, which it says provide vocational training to help stamp out religious extremism and teach new work skills.

Robinson [from RWR Advisory Group] said that many Americans are unwittingly owning shares in such companies because they are in index funds. “They are picked up by the index providers in sizable numbers and sluiced into U.S. investor portfolios with seemingly very little, if any, due diligence or disclosure in the categories of national security and human rights.”

MSCI Inc (MSCI.N), whose products are designed for global investors, added Hikvision to its benchmark emerging markets index last year. MSCI declined to comment.

One other company among the blacklisted eight that is owned by some of the big pension funds is iFlytek Co Ltd… Its shares were owned by funds in Florida, New York State as well as CalSTRS and the California Public Employees Retirement System (CalPERS) indirectly through the iShares MSCI Emerging Markets ETF at their last disclosure dates. IShares, a top ETF provider owned by BlackRock Inc (BLK.N), declined to comment…

The New York State Common Fund… liquidated its position… It had owned 2.7 million shares worth $14.2 million at the end of March through an external fund manager, but sold them in May, a spokesman said, declining to say why.

U.S. mutual funds have also cut or eliminated positions in Hikvision amid the negative publicity…

… One fund to pull out is the $2.7 billion Artisan Developing World Fund (APDYX.O)… Artisan did not respond to a request for comment…

The $33 billion Alaska Permanent Fund had considered an investment in a China fund featuring Hikvision as a top holding…

Schroders Global Asset Management, a finalist for the fund’s mainland China investment mandate, touted Hikvision as a top performer…

Some Alaska trustees… worried about “headline risks” of investing in companies that aid the Chinese government’s surveillance activities, according to the minutes…

Reuters could not determine whether Alaska made an investment in the Schroders fund that included Hikvision stock.

A spokeswoman for the Alaska Retirement Management Board, which oversees the pension, said it does not have any additional information to share regarding Schroders’ efforts. A Schroders spokesman declined to comment.

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Related companies: Hikvision