By on July 19, 2012

General Motors pensioners should not worry about their underfunded pension plan. Its assets will be in safe hands. Those of the Chinese government. The Chinese government has agreed to buy large chunks of it, says Financial Times. According to the paper, China’s “State Administration of Foreign Exchange, which manages China’s more than $3 trillion in foreign exchange reserves, will pay $1.5bn-$2bn for GM’s positions in blue chip private equity funds.”

The FT quotes an investment adviser who said the deal was discreet, even by private equity standards, because “there is clearly concern about selling U.S. assets to China, especially in an election year.” Says the Financial Times:

“The private equity industry has emerged as a major issue in this year’s US presidential election. Mitt Romney, the Republican candidate and founder of Bain Capital, has had to fend off criticism that the companies it acquired actively outsourced US jobs.

Lexington Partners, a specialist investor in second-hand private equity stakes, is advising Safe and will administer the complex portfolio, one person briefed on the situation said. It may also buy some GM positions that Safe does not want. The New York-based investor was one of three firms mandated in 2010 to pick up $1.5bn of private equity investments for China Investment Corp, the country’s sovereign wealth fund.”

According to Reuters, China, which holds close to $1.2 trillion in U.S. treasuries, “has been looking to capitalize on the liquidity concerns of assets managers such as pension funds amid financial market volatility by snapping up their assets.”

GM’s underfunded pension plan and its floundering Opel units are seen as the two largest risks to the company. GM has $109 billion in assets in its global pension plan, which has Its obligations of $134 billion.

Says Reuters: “Pension funds and other institutional investors lock up their money for an average of 10 years when they invest in private equity. To exit these investments, they have to find someone willing to buy their private equity fund stakes, which could have gone up or down in value.”

That buyer was found in GM’s new home, China.


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19 Comments on “GM Outsources Its Pensions To China...”

  • avatar

    I’m not psychic, but I just had a flash forward into the future where a news headline reads:


    the rest is a bit cloudy.

  • avatar

    Seems a little complex to reduce to a campaign slogan.

    I think I know where you want this story to go, but I’m not sure its that big of a deal.

  • avatar

    It will be safer in China and will show a greater ROI than keeping it here.

  • avatar
    D in the D

    Yeah, I think you are mis-interpreting what is going on here. GM’s pension plan holds chunks of its assets in these private equity funds that require long holding periods and can be difficult to exit before maturity. The PRC has stepped up to buy them. So GM will get cash, which presumably will be invested elsewhere with Prudential or whomever. Other than the possible fire sale pricing, there is no ongoing involvement of China with the pension plan(s).

    The Chinese meanwhile, are gaining entry to the private equity world, without the kind of scrutiny that came when CNOOC tried to buy Unocal back in 2005. They are getting smarter about how they acquire these things now…

  • avatar
    Robert Schwartz

    This is actually a good thing for GM and its pensioners. It allows GM to redeploy its investments in to less risky asset categories like bonds. Those of you who have studied insurance and actuarial theory will understand that there is a powerful case to be made for limiting investments by pension funds to the least risky categories, despite their lower returns.

    PE and similar investments, such as venture capital and hedge funds, carry the promise of high returns at very high risk and very high cost. Further, there is some evidence that those returns are declining and will continue to do so. This move by GM is to be applauded, particularly by US taxpayers, who run the risk of having to pay of unfunded pension obligations through PBGC.

    Even xenophobes can smile. This is precisely the kind of investment you want foreign sovereign wealth funds to make. The dollars come back to the US, they cannot leave again for a while and they will be under American control.

    • 0 avatar

      Of course, this assumes the pension fund managers will be smart and actually reinvest in less risky assets like bonds.

      The cynic in me thinks the pension managers will behave more like the guy who gets a consolidation loan to pay off his credit cards and lower his monthly payments, and then starts running his credit cards balances back up again. Nothing learned here.

      • 0 avatar

        I think you’re being a little too cynical. The extra liquidity is a good thing as it allows pension fund managers to diversify their portfolio and to make some additional money from things like securities lending (which sounds scary but is actually quite safe as it is collateralized in cash at, typically, 105% of mark-to-market value).

  • avatar

    This is preferable to US tax dollars buying the debt. Not being a GM pensioner, I have no care whether it’s good for the fund or not.

    • 0 avatar

      All FIAT money is make believe. If the US government does crash the dollar, they’ll just create “the Amero” and we’ll finally have that one world government I’ve heard about”.

      America is so ridiculously deep in debt, it is IMPOSSIBLE to get out, even if we taxed everyone 100% of what they make. Which wouldn’t be possible.

      • 0 avatar
        Robert Schwartz

        I don’t think the math works for you. To amortize $1 of debt over 30 years at 3% requires annual level payments of 5.1% of the principal. I.E. to pay off a debt equal to the GDP requires an annual level payment of 5.1% of GDP.

        It would undoubtedly require a new tax such as a VAT to produce the sum as the income tax does not produce more than 20% of GDP regardless of the rates. But it is doable in theory, and without traumatic action.

        Of course the Dumbocrats would have to watch as several of their favorite programs were gutted, and the Rethuglicans would have to watch as a major new tax were implemented. But, it could be done.

  • avatar

    Sometime in the future, and it may be sooner than you think, GM will be a Chinese company with a few operations in other countries. Back in the early 80s, GM threatened to close all North American assembly plants. They have been working on this relocation plan for 30 years.

    • 0 avatar

      Unfortunately I have to agree, and if they pull it off whose to say whats left of Chrysler and Ford wouldn’t follow suit?

    • 0 avatar

      That should have been done in 2009.

      And since it didn’t happen then, the US government will not let that happen in the future either. What we’ll get instead is never-ending bailouts like those for the US Postal Service, Fannie and Freddie.

      In essence, GM and the UAW have become wards of the state.

  • avatar

    As long as the ruling-class masters do not tax us lowly commoners who spent a life-time doing the jobs “Americans will not do” on the foodstuffs retrieved from dumpsters I will not worry too much.

  • avatar

    obbop – when you get sick from dumpster diving, the U.S. govt. will make you pay a penalty because you didn’t buy health insurance. The Supreme Court just classified that penalty as a “tax”.

  • avatar

    See the USA in your Chevroret

  • avatar

    The title of the article is mis-leading/sensationalist at best, China is buying GM’s position in certain blue chip equities for 1.5 to 2 billion dollars. The pension fund is currently funded at 109 billion with 134 billion dollars worth of obligations. So it looks like China will own around 1% of the pension fund and that does not appear to be a controlling interest in anything.

    And the point of the article was what?

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