U.S. warns college endowments to divest China stocks on delisting risk

20 Aug, 2020 00:30
source: Bloomberg

Singularity Financial Hong Kong August 19, 2020 – The U.S. State Department is asking colleges and universities to divest from Chinese holdings in their endowments, warning schools in a letter Tuesday to get ahead of potentially more onerous measures on holding the shares.

“Boards of U.S. university endowments would be prudent to divest from People’s Republic of China firms’ stocks in the likely outcome that enhanced listing standards lead to a wholesale de-listing of PRC firms from U.S. exchanges by the end of next year,” Keith Krach, undersecretary for economic growth, energy and the environment, wrote in the letter addressed to the board of directors of American universities and colleges, and viewed by Bloomberg.

“Holding these stocks also runs the high risks associated with PRC companies having to restate financials,” he said.

The warning to endowments opens a new front in the Trump administration’s multipronged campaign against China’s government, businesses and individuals.

Foreign equities made up 13.9% of college endowments with more than $1 billion, according to the most recent data compiled by the National Association of College and University Business Officers for the year ended June 2019.

Endowments will be eager to examine the issues the government is raising, Krach said Tuesday in a Bloomberg Radio interview.

“These boards have a moral responsibility, and perhaps a fiduciary duty, to really look into this, to make sure their investments are clean,” said Krach, former chairman of the Purdue University Board of Trustees.

Endowment managers “are always monitoring the political winds,” said Jim Dunn, chief investment officer of Verger Capital Management, whose clients include Wake Forest University’s fund. “They are blowing pretty hard, but with no real impact yet.”

China’s Foreign Ministry on Wednesday called the U.S. an “important” partner in investment, saying both sides had gained from their financial cooperation.

“Putting up obstacles for such cooperation does not serve the interests of our capital markets,” ministry spokesman Zhao Lijian told a regular news briefing in Beijing in response to a question about the U.S. warning. “We urge the U.S. side to create a fair, just and non-discriminatory environment for Chinese companies’ investment in the U.S.”