ASSET MANAGEMENT France’s €33bn pensions investor warns of ‘technological cold war’ Investors can no longer count on globalisation, says top executive at €33bn French state fund Alamy By Mark Cobley May 24, 2019 Updated: 7:40 a.m. GMT One of Europe’s top state-pension investors has warned the world is entering a period of “radical uncertainty”, with rising tensions between the US and China threatening to reverse what investors had assumed was the inevitable march of globalisation. Olivier Rousseau, an executive director at France’s €33bn Fonds de Réserve pour les Retraites, said investors now have to be alert to new risks, such as companies suddenly being subjected to restrictions or product bans in certain parts of the world. On May 15, US president Donald Trump announced a ban on US companies using technology from foreign suppliers deemed a security risk — a move seen as aimed squarely at Chinese telecoms group Huawei, the world’s second-biggest smartphone maker. Since then, companies including Google and Panasonic have announced they will have to either break or scale back ties with Huawei. Rousseau, who was speaking at the World Pensions Council’s annual forum in Brussels on May 23, said: “Our portfolios are constructed under the assumption that there will be no war, and that the rule of law will be the reality under which we operate. And this is being challenged. I think we are entering a new cold war — a technological cold war.” “A lot of the damage from Huawei is done already,” said the executive, who leads FRR’s efforts to pick fund managers to invest its portfolio. “With the skirmishes Trump is carrying out, you have to question the viability of value chains on a global basis. It’s no longer totally safe to outsource to any part of the world. “Even between the US and Europe now, I would not be totally confident. If you are a western European company, are you totally safe in contracting your cloud services out to a US provider, if sometime in the future a US president could tell them they have to block European services for one reason or another? That is very worrying.” Others at the forum were not so pessimistic. Gert Dijkstra, a senior managing director at the Netherlands’ APG, a €480bn pension fund manager, said that while his fund managers do spend a lot more time analysing geopolitical risk than they did five years ago, “the flipside of risk is opportunity”. He said: “We started 16 months ago to invest in onshore China equities, through a joint venture with Chinese fund manager E-Fund. We now have an €800m China A-share fund. And this was long after we started to invest in infrastructure and real estate in China. “So that illustrates that we do see risks, but we also see the opportunities. Do we ask for more risk premium [a higher return to compensate for the higher risk]? Well the answer is yes, sure, sure we do. If as a global asset manager you are doing your homework, and if you find sufficient risk premium, you will go in.” But Dijkstra — whose fund is a big investor in infrastructure assets such as airports, toll roads and ports — added that competition for these assets from Chinese state buyers had added a new dimension to some investment decisions. In March, the Italian government signed up to China’s Belt and Road global infrastructure and trade programme, and state-owned Chinese companies will now be involved in developing the ports of Genoa and Trieste. He said: “If we know that a Chinese sovereign wealth fund like CIC is bidding on a port, we are very reluctant to do that, because they are strategic bidders and we are financial bidders.” A strategic bidder might be willing to pay a higher price, as it has reasons for owning an asset that go beyond making a financial return. Equally, Dijkstra added, on larger deals there is scope for pension funds such as his own to work alongside state investors. “We find there is a lot of competition in the infrastructure up to [a deal size of] €1bn, but if you are able to write big tickets for investments of €1.5bn, €2bn, you are in an area where there is less competition, which makes it more interesting for us. “And that is one of the drivers for us to seek collaborations with other investors and sovereign wealth funds, such as CIC, or GIC of Singapore, for example.”
China needs to be curtailed. If Trump wasn't such a "me and me alone" cowboy, things could happen. But his current strategy isn't maximally effective.
Find allies. Like with anything in commerce and power, you need the majority on your side. If North America, Europe, AusNZ, Japan and a few others would collectively start punishing China, things will get tricky. Apparently many powers have suggested that to Trump but he's all "no, no, it's all about me doing it". Ego thing, as always with him.