Pension funds recoiling from China, says Dutch asset manager

APG, one of the world’s largest asset managers, said its pension fund clients were shying away from China in a growing pullback by investors alarmed at rising geopolitical risks.

The Netherlands-based group, which manages about €532bn of assets for Dutch pension plans serving around 4.8mn participants, is an established investor in China and opened an office in Hong Kong about 15 years ago.

However, Thijs Knaap, chief economist with APG Asset Management, told the Financial Times that concerns about China were rising among its pension fund clients.

“Five years ago, we’d say ‘China, it’s growing fast and it’s opening up’ and the funds would say ‘yes, take our money there . . . no discussion’,” Knaap said.

“But this has become a lot harder to sell to our stakeholders. They’re very conscious of the risks they are running. There is a very real geopolitical risk that has been added to the proposition.”

He added: “We are still very much exposed at this point. We own real estate, we own equity, debt, and we are very much invested in China.” APG did not disclose the total value of its China exposure.

The comments from one of Europe’s most heavyweight investors come as other large institutional pension funds pull back from China, as concerns grow over tensions with the US.

Last week the FT reported that Caisse de dépôt et placement du Québec, the C$400bn ($295bn) global investment group, had stopped making private deals in China and was closing its Shanghai office.

Singapore’s sovereign wealth fund GIC has slowed the pace of its direct investments in China, while Ontario Teachers’ Pension Plan said in January that it had paused future direct investments in the country. 

APG said it was in discussions with its clients about the regions and asset classes they wish to invest in, including China.

“On the one hand, it seems inconceivable to me that we would withdraw from such a large part of the world economy,” said Knapp. “(But) at the same time we’ve certainly seen some dark clouds around China.”

He added: “We’ve always seen China as a place where we have to do some work. We can’t just put money there and expect everything to be all right.”

At the same time, European markets have gained more allure for investors — the Euro Stoxx 600 index has gained more than 7 per cent so far this year, in part because the region succeeded in dodging an energy crisis over the winter.

“Five years ago, when we looked at investment opportunities in Europe with negative interest rates, equity markets, very high valuations . . . it just looked very unattractive and that prompted our pension clients to look further afield,” he said.

“A lot of money has gone out of Europe, either to the USA or to Asia, but also we’ve been very busy putting money in alternative investments or new investment categories.”

However, he added: “The trends that we’ve seen for the last five years are coming to an end. No longer are we pulling money out of Europe, no longer are we exploring whole new asset classes. Expected returns in to traditional asset classes and the traditional regions have become better.”

Knapp said APG’s pension clients had their own policies on risk and whether they believed it was “better to keep the lines open” by staying invested in a region.