10 Apr PUBLIC PENSION CORNER, #39: Is China Exposure Investment Risk?
NEWS:
I. Labor OKs Private Equity in ERISA Plans
The Department of Labor’s Employee Benefits Security Administration announced that it has issued a notice of a proposed rulemaking, which confirms that ERISA-governed pension plans are legally able to invest in alternative investments, including private equity:
Today, the Labor Department takes a major step toward that new golden age. We have issued a notice of a proposed rulemaking on the selection of investment options for defined-contribution plans such as 401(k)s. Our rule confirms that there is no investment class or strategy that is per se unlawful for retirement plans. That includes alternative investments, such as private equity, which isn’t offered on public exchanges and could be used to diversify plan offerings.
The department’s rule reaffirms that the governing statute—the Employee Retirement Income Security Act of 1974, or Erisa—is a law of process. Under Erisa, loyal and conflict-free retirement-plan fiduciaries have discretion and flexibility to determine the investments most likely to maximize risk-adjusted return for the retirement savers who participate in their plans. These fiduciaries are to be judged by the process they use to select investment alternatives, not second-guessed in hindsight. The fiduciaries, not Washington bureaucrats or plaintiff lawyers, determine what investments belong in retirement plans.
The proposed rule makes clear that investment innovation is a virtue, not a vice, under fiduciary law. We recognize the benefits of including diversified investments that are less likely to perform in lockstep with one another and more likely to have uncorrelated returns. Our rule protects American workers by demonstrating the utility of risk-mitigation strategies designed to protect their retirement savings against significant market drawdowns, as we saw in the 2008 debt crisis. The rule also validates the inclusion of lifetime income solutions, such as annuities, for American workers who need predictability in retirement.
II. Oklahoma Supreme Court Rules ESG Law Unconstitutional
The Oklahoma Supreme Court ruled this week that the law barring state entities from doing business with financial services companies considered hostile to fossil fuels is unconstitutional. The Court also permanently enjoined Treasurer Todd Russ from enforcing the law:
A law requiring state entities to divest from financial companies that have policies deemed hostile to fossil fuel companies is unconstitutional, the Oklahoma Supreme Court ruled on Tuesday.
The state’s highest court also issued a permanent injunction against state Treasurer Todd Russ, the defendant, to prevent him from enforcing or applying the Oklahoma Energy Discrimination Elimination Act of 2022 to the Oklahoma Public Employees Retirement System. Tuesday’s decision upheld a 2024 district court decision.
Former Oklahoma Public Employees Association President Don Keenan, who has died since filing the initial lawsuit in 2023, alleged the law passed by the state Legislature was unconstitutional because it forced state pension systems to drop certain fund managers at a cost to retirees.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Is China Exposure Investment Risk?”
Nike is in big trouble. They told us so themselves just a couple of weeks ago:
When Nike (NKE) reported their fiscal Q3 ’26 last Tuesday night, March 31, ’26, there was very little to cheer about, and in fact the lowered guidance for fiscal Q4 ’26, which I was hoping wouldn’t have to be done, put a significant knife in the back of Nike’s prospects for not only the ’26 fiscal year (which ends May 31, ’26) but for the calendar year as well.
The actual Q3 ’26 Nike revenue and EPS really don’t matter much since the stock has seen heavy selling starting on April 1 and continuing through yesterday, April 6, ’26, where even yesterday, 4/6/26, Nike’s stock fell again on average daily volume of 26.7 million shares, versus the average trading volume of 18 million.
Likewise, Disney – another iconic American brand – is struggling mightily:
Disney is preparing to make sizable layoffs in one of the first significant moves under the new chief executive officer, Josh D’Amaro.
The entertainment company is planning to eliminate as many as 1,000 positions in the coming weeks, according to people familiar with the matter. Many of the cuts will be in the company’s recently consolidated marketing department….
D’Amaro’s efforts will ultimately be measured by whether he can boost the company’s stagnant stock, which has fallen by nearly half from its 2021 high and currently trades around the same price it did a decade ago.
Now, most non-professionals would look at that, knowing that Nike and Disney are two companies that leaned heavily into the politicization of business over the last decade or so, and would conclude that these are but two more examples of the modern retail/market adage, “Get woke, go broke.” After all, Nike decided that it wanted an anti-American, pro-Cuban NFL washout to be its face for the current generation. Meanwhile, Disney embraced LGBTQ messaging aggressively, and its now-(temporarily?)-former CEO deliberately picked a fight with the Governor of Florida, assuming that his self-righteousness would melt the hearts of consumers. Both companies chose poorly, in other words, and both are now suffering.
While there is, inarguably, a certain logic to this case, and neither Nike nor Disney helped itself by overtly embracing political causes, the woke/broke narrative fails to explain the entire story of these companies’ fall from grace. There are other factors at play here, at least one of which underscores the multifaceted nature of the threat posed by poor fiduciary analysis and planning in the era of globalization. In this instance, that factor can be summed up in one word: China.
As you may (or may not) recall, just a few weeks ago, I detailed one of the risks of China-related investments in these pages. Today, I will address a couple of others and try to explain their ongoing relevance to fiduciaries and other shareholders, using Nike and Disney as cases in point.
Once upon a time, Nike didn’t get too worked up about the negative reaction of certain segments of the population to the publicization of its political predilections. It ignored Michael Jordan’s sage advice that “Republicans buy sneakers too,” in large part because it could afford to, given its expanding market in China. It didn’t need American conservative consumers, it reasoned, because, before long, Chinese consumers would be the company’s primary source of revenue. But a funny thing happened on the way to Zhongnanhai.
First, Nike felt pressured, given its political posture, to raise questions about cotton produced in Xiangjiang province, where slave labor is rampant. The CCP amplified Nike’s statement, Chinese celebrities immediately dropped their Nike endorsements, and online sales collapsed 59% almost overnight. Domestic brands like Anta and Li Ning surged into the gap and — crucially — have not retreated. Anta now holds approximately 23% of the Chinese sportswear market, ahead of Nike. Nike’s Greater China revenue has now fallen for six consecutive quarters, dropping 12.7% in fiscal 2025 and 16.8% in Q2 2026.
This is what is known as “the nationalist substitution trap.” China cultivates domestic competitors and then uses consumer nationalism, often government-amplified, to shift market share to them when a political moment arrives. The foreign company that spent decades building brand loyalty in China discovers that loyalty was conditional and fragile.
As for Disney, I detail its China problems in a chapter in The Dictatorship of Woke Capital. Briefly, in order to get permission to operate Shanghai Disneyland, Disney agreed to take on a Chinese state partner, giving it significant equity and control. To get movies approved for Chinese distribution, Disney modified content, avoided certain subjects entirely, and — most infamously — thanked Xinjiang public security authorities in the Mulan credits, which was both reputationally catastrophic in the West and commercially useless in China. Disney’s China problems are often referred to as “the concessions treadmill.” Disney built enormous exposure to China, premised on the CCP’s goodwill, only to discover what countless people had tried to warn them about: the CCP has no goodwill toward foreigners (and not much toward its own people), no matter what anyone says. In the end, the concessions didn’t even produce the market access they were meant to buy.
Next month, Intel, the chip-maker in which the U.S. government now holds a 10% stake, will hold its annual general meeting. On its proxy ballot is a proposal submitted by Bowyer Research (a sponsor of this newsletter) on behalf of its client, The Heritage Foundation (where I am a visiting fellow in its Free Enterprise Initiative). Both of the risks detailed above – the nationalist substitution risk and the concessions treadmill risk – apply in Intel’s case. With respect to the latter, the proposal states and asks (in its supporting statement):
While Intel has reportedly disclosed elements of its China exposure, it has not disclosed the potential concessions made to secure CCP approval for operations, how these arrangements influence corporate decision making, and the long-term risk this poses to shareholder return. This lack of transparency leaves shareholders unable to adequately assess risk. As such, shareholders are right to ask Intel to explain the steps it is taking to mitigate these risks to revenue and continued company success.
As for the substitution risk, Huawei’s recovery is the semiconductor version of Anta’s rise. After U.S. export controls appeared to have crippled Huawei, it launched an intensive domestic substitution effort that produced surprisingly capable results. The window during which China needs Intel’s chips is real but is actively closing, and when the political moment arrives (a Taiwan flashpoint, a sanctions escalation, a trade dispute), China has repeatedly shown that it will weaponize consumer and institutional behavior against American companies with little to no notice. At that moment, Intel’s 24% revenue exposure won’t gradually erode – it will fall off a cliff.
Add to all of this various national security risks – derived from the dual-use nature of its products and its receipt of funding from the CHIPs Act – and Intel is almost certainly playing with fire. The fiduciary executives at Intel have a problem – and as the Heritage /Bowyer proposal stipulates, fiduciaries who hold the company on behalf of shareholders may have a problem as well. This is not to say that any shareholders/fiduciaries reading this should consider it a solicitation in favor of that proposal. That’s not my job here. My job is merely to point out what is known – and largely undisputed – about the way the CCP handles foreign companies. As the experiences of Nike and Disney show, a real, consistent, and cross-industry structural dynamic exists in China. The specific mechanism may vary from company to company, industry to industry, but the underlying dynamic is structurally consistent.
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