The growing tension between China and the U.S. over trade and technological dominance is shining a spotlight on the billions of dollars that U.S. pension funds and college endowments have channeled into Chinese technology companies in search of investment returns.
China has become a rising power in technologies like artificial intelligence and facial-recognition software, helping fuel a trade dispute with the U.S. that escalated again over the past week with tit-for-tat measures from Washington and Beijing. Yet a large chunk of the capital behind China’s success can be traced back to U.S. funds that manage money for Texas teachers, San Francisco firefighters, Minnesota policemen and Louisiana judges.
It works like this: Pension funds from California to New Jersey and college endowments pour money into venture capital and private equity firms, which scour the globe for the best investment opportunities. In recent years, many of these firms have turned to China, helping fuel the success of global giants such as Alibaba Group Holding Ltd. and rising stars like drone-maker DJI and artificial-intelligence pioneer SenseTime Group Ltd. Pension and endowment fund managers may recognize such investments could become politically unacceptable, but they also have a fiduciary responsibility to pursue lucrative returns for their clients.