US fund snubs emerging markets - China is not considered up to scratch
The world's largest pension fund, US-based Calpers, has ruled out investing in some of the world's main emerging economies, citing worries over stability and business ethics.
Among the countries rejected by Calpers are China, India, Indonesia and Russia, and the fund also dashed hopes that it might begin putting money into Malaysia and Thailand.
Calpers, which manages the retirement funds of Californian public employees, has some $133bn in assets, including some $1.8bn in emerging markets.
It has traditionally taken a lead in ethical investments, and is highly influential within the US fund management industry.
In and out
In all, Calpers has rejected 12 major developing economies, also including Morocco, Sri Lanka, Egypt, Pakistan, Colombia and Venezuela.
Pakistan is off the list...
Last year, Calpers stunned investors in Malaysia, the Philippines and Thailand by deciding to pull out pending this latest decision.
Some had expected it to move cautiously back into south-east Asia, but the Calpers board has now voted to tighten its investment criteria.
At the same time, Calpers gave the green light to 14 countries, chiefly in Eastern Europe and Latin America.
Informed decisions
Calpers last year began to consider civil liberties, press freedom and political risk in making investments, after deciding that stable, liberal countries would yield better long-term returns.
To this end, it has hired California-based Wilshire Consulting to draw up a scoring system for target countries.
In this decision, the fund has actually exceeded the severity of Wilshire's recommendations.
Aside from pure moral criteria, Calpers is also especially interested in accounting transparency, traditionally a major headache for investors in countries such as Russia or China.
The policy has occasionally gone awry - after ruling out investment in the Philippines last year, Calpers had to backtrack, admitting the decision had been made on the basis of mistaken information.
Ups and downs
Nor is the policy yet proven in terms of investment success.
The 14 markets Calpers has cleared for investment have lost some 8% in dollar terms since end-2001, against an average gain of more than 13% from the countries excluded.
Pakistan and Russia, for example, have been especially strong performers in the past couple of years.
Among the countries given the green light, only the Czech Republic, with a 46% stock market gain since the end of 2001, has delivered really impressive returns.
Others, such as Brazil, Argentina and Turkey, have fared disastrously.