GM Outsources Its Pensions To China

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.