San Francisco, Shanghai and secretaries of state

A pension fund conference in San Francisco, featuring a keynote speech from Madeleine Albright, highlighted the opportunities and perils of investing in China and other emerging markets. By Paul Fruchbom.

A few weeks ago in San Francisco, Madeleine Albright, the former Secretary of State under ex-US president Bill Clinton, delivered a speech to a group of pension fund managers and institutional investors on the current state of geopolitics. Her assessment, perhaps understandably, was not upbeat, citing fears of protectionism in the US, the war in Iraq and growing nuclear threats in Iran and North Korea. Of most direct interest to international private equity investors was her discussion on China, which was only slightly more optimistic.

“China may be a rising country,” she said. “But it is also a nervous one.”

Albright: stating her opinion

Albright noted the rise of censorship in China, an increase in public protests and a central government that continues to wield an iron fist towards dissenters. Yet she also echoed a note of hope, pointing out that trade and growing economic ties between China and the rest of the world would—with the right diplomatic approach—lead to a more open democratic society.

“Trade between the United States and China will do more to bring our two nations together than push us apart,” she said. “Through much of the last century, China was big, but poor. Now, China is big and not so poor.”

Judging by the attendance at the conference, participants were more upbeat on China’s prospects than Albright—at least for investment purposes. And though the topic of the conference was real estate, the themes and insights just as easily applied to the private equity sector.

For example, Michael McCook, senior investment officer of the California Public

Through much of the last century, China was big, but poor. Now, China is big and not so poor.

Madeleine Albright

Employees’ Retirement System, one of the largest public pension funds in the world, discussed CalPERS’ increasing focus on international assets. In terms of real estate in emerging markets, the pension fund is planning to increase its exposure from $1.4 billion today to almost $6 billion five years from now—a trend that is being mirrored in the private equity side of the house. McCook pointed out that he even wants CalPERS, which is based in Sacramento, to open offices in both London and Asia in order to monitor the pension fund’s global investments.

As limited partners begin to follow their GPs around the globe in search of better opportunities, one wonders if CalPERS, long at the forefront of US public pension funds, may be setting a trend. But setting up a bunch of satellite offices in different countries around the world? Perhaps diplomacy and investing internationally may not be so different after all.