Recruiting in China

The California Public Employees Retirement System, the largest US public pension fund, is considering investing for the first time in Chinese companies, aiming both to capitalise on the country's booming economy and to raise its exposure to emerging markets.

Such a move by Calpers, which has not invested any of its $208bn (€164bn) portfolio in Chinese companies because of poor corporate governance standards, could have a ripple effect on other US public pension funds and increase demand for Chinese shares.

In an interview with the Financial Times, Russell Read, Calpers' recently appointed chief investment officer, indicated that the fund could begin by investing in Chinese companies with US or international listings through American Depository Receipts and Global Depository Receipts.

He said the pension fund's staff could recommend the strategy to Calpers' board in the coming months.

Mr Read, who shaken up Calpers' investment strategy since joining in June, said the issue of how to invest in China and other emerging markets was a primary focus for the Sacramento-based fund. "Investing properly in the emerging markets . . . is fundamental to our investment success," he said.

Calpers, which has a reputation as a tough guardian of shareholders' rights, has so far excluded China from its list of investable markets.

The list is updated yearly and is up for re-evaluation by the Calpers board in February, although permission to invest in ADRs and GDRs could come sooner.

In spite of China's fast-growing economy, its capital markets have proved disappointing to foreign investors. The local stock markets have been volatile and are closed to all but a small group of investors picked by the Chinese government.

However, several big companies, including the state oil giants Petrochina and CNOOC and telecommunications operators China Telecom and China Mobile, have listings in Hong Kong and trade ADRs in the US.

Calpers has some real estate holdings in China. Other US public pension funds also have a degree of exposure to China, although in most cases it appears to be limited to real estate.