Investment Strategies

Florida pension-fund managers are set to divest from China-owned companies in anticipation of Governor Ron DeSantis signing a recently approved bill. The bill (HB 7071), which gained unanimous support from both the House and Senate, mandates the State Board of Administration (SBA) to create a divestment plan by September 1. This plan targets companies majority-owned by the Chinese government, the Chinese Communist Party, or the Chinese military, with a divestment deadline set for one year later.

“The exposure is not very high for a number of reasons. But it is something that we will implement once that bill is, presumably it will be signed or will become law here soon,” stated Lamar Taylor, interim executive director of the SBA, during a meeting of the agency’s Investment Advisory Council.

Overseeing state investments totaling about $225.4 billion as of mid-February, the SBA’s largest fund is the Florida Retirement System pension plan, which accounts for roughly 84 percent of the assets. Taylor assured that targeting companies with more than 50.1 percent Chinese government ownership is a “fairly ascertainable standard.”

“There are a number of (outside) service providers that we can look to, to help us identify those companies, so that we can implement that from a compliance process,” Taylor explained, noting that the current exposure to such companies is “under $300 million.”

A House analysis from February estimated the value of investments in over 200 Chinese state-owned entities at $277 million, or 0.16 percent of the retirement system. Notably, $53.6 million of this was linked to China Construction Bank Corp., and $46.4 million to Kweichow Moutai, known for its Chinese liquor. Most investments are under $5 million each.

Florida has a precedent for such bans, having imposed similar restrictions on investments involving Cuba since 1993, Sudan and Iran since 2007, and Venezuela since 2018.

Although the Legislature has not yet formally sent the bill to DeSantis, the initiative marks the latest effort by state leaders to sever economic ties with China and other nations. In December 2021, DeSantis, Attorney General Ashley Moody, and Chief Financial Officer Jimmy Patronis, in their roles as SBA trustees, initiated a review of Florida Retirement System investments for links to the Chinese Communist Party. This led to a pause on new investments in China in March 2022, part of the state’s “emerging market strategies” since the mid-1990s.

Recent state laws have also restricted property ownership by certain individuals from China and other “foreign countries of concern.” A proposal to clarify this land-ownership law failed after DeSantis opposed it, emphasizing the state’s stance against perceived threats from China.

This divestment push comes amid broader national concerns, highlighted by the U.S. House’s recent approval of a measure to potentially ban the social-media app TikTok unless it is sold by its Chinese parent company.

Florida’s decisive move reflects ongoing efforts to protect state investments and economic interests from foreign influence, with significant implications for the management of public funds.