Texas House lawmakers have recommended state pension funds divest from companies headquartered within hostile nations.
In the pension fund world, there is the “prudent person rule.” Developed in the 1820s, this rule “requires fiduciaries to make investment decisions for their clients based on what a reasonable (or prudent) investor would choose for themselves.” An interim report of a special Texas House committee raised questions as to whether or not that is how Texas’ pensions are being run.
This report found that American states have, according to recent estimates, invested $68 billion in China. This includes billions from Texas.
This is a national security concern. The U.S. Office of the Director of National Intelligence has identified China, under the control of the Chinese Communist Party, as a hostile threat. Michael Lucci of State Armor, an Austin-based security firm, warned committee members that “the CCP has shifted from a strategy of peaceful co-existence to one of attempting to become the leading global power.”
In their report, committee members warned that investing taxpayer money in “foreign adversaries” presents risks to national security as well as fiduciary responsibility.
They identified three key categories of concern.
The first is transparency. Committee members highlighted the risks of American capital sailing into China when there are questions about how these funds are used. “This lack of information compromises market integrity and investor protection,” committee members wrote. They found these risks in a report from the U.S. House Select Committee on the Chinese Communist Party.
The second concern is the violation of fiduciary duty. “Experts like Roger Robinson, from President Reagan’s National Security Council, argue that investing in China inherently breaches fiduciary responsibility, given the national security risks,” committee members wrote. “Texas hedge fund manager Kyle Bass echoes this concern, urging that such investments undermine financial accountability.”
Kyle Bass is also a national security specialist. He has repeatedly warned of the threat of communist China.
The third category of concern is human rights and financial risk. Committee members pointed to Missouri Treasurer Vivek Malek’s recent efforts. His justification for divesting that state’s pension funds from Chinese assets were human rights abuses, poor financial performance, and national security concerns.
Members of the select Texas House committee recommended four courses of action for Texas in 2025.
First, they wrote that state lawmakers should ban the investment of taxpayer money in foreign adversaries.
Second, “detailed disclosures” should be required from state pension funds. Committee members wrote these show how the investment of taxpayer money matches fiduciary duties and national security interests.
Third, divestment from “risky foreign assets” and investment in “safer” ones.
Multiple reports suggest that transparency and due diligence are necessary when it comes to deciding whom to invest in. The U.S. Treasury Department’s Office of Foreign Assets Control maintains a list of economic and trade sanctions. Not all companies abide by these. In December 2024, German-headquarted business Aiotec agreed to a $14 million settlement with OFAC for violating a sanction against Iran. Roughly six months earlier, it was widely reported that an American stock exchange operator agreed to a $4 million settlement with OFAC for violating 2012 sanctions against the government of Iran.
Similar lists are maintained elsewhere at the federal level. On January 16, the U.S. Dept. of Commerce added 16 new entries to America’s Entity List, identifying two Singaporean and 14 Chinese entities as “contrary” to American national security and foreign policy interests. The U.S. Dept. of Defense recently updated its list of Chinese military companies operating within the United States.
Finally, committee members recommended working with financial institutions “to develop emerging market funds without exposure to adversarial nations.”
These recommendations follow Gov. Greg Abbott’s November 2024 executive order for state entities to halt new investments into China and divest from existing holdings linked to the CCP. This came after it was revealed that the investment arm of Texas A&M and the University of Texas Systems had invested in Chinese businesses.
State Sen. Joan Huffman, chair of the Texas Senate finance committee, expressed support for financial security.
“The financial security of state investments is absolutely critical. I agree with Governor Abbott that all investments of state funds with foreign adversaries must be evaluated,” she wrote Texas Scorecard. “I look forward to working with my legislative colleagues this session to evaluate state investments that may present a financial risk. Texas must continue to take necessary actions to safeguard its investments.”
It remains unclear whether any of these recommended actions would apply to local government entities in Texas. The office of State Sen. Paul Bettencourt, chair of the Texas Senate’s Local Government Committee, did not respond to a request regarding whether such mandates should be applied to local governments.
Texas Scorecard asked the offices of Fort Worth Mayor Mattie Parker, Dallas Mayor Eric Johnson, and Houston Mayor John Whitmire if any of those cities invest taxpayer money in companies headquartered in countries hostile to America. None replied before publication.
The threat of investing in America’s enemies was covered in the interim report from the Texas House Select Committee on Securing Texas from Hostile Foreign Organizations, published in December 2024. The report covered multiple theaters in Texas under threat. The final one will be explored in a future article.
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