The largest public pension fund for Texas public education employees will reduce Chinese companies from its list of investment stocks. 

Bloomberg reported that the Teacher Retirement System of Texas (TRS) got approval last month to move to a new stock benchmark that combines two emerging market indexes, with and without China.

The fund’s new tailored benchmark aims to reduce its “outsized weight” stock allocation to China in the MSCI Emerging Markets Index that it has depended on.

TRS said the change was designed to improve the diversification of the benchmark. It has six months to adjust its current portfolio to move to the new benchmark, allowing it to reduce negative price impact.

The move will cut the fund’s $184 billion exposure to Chinese stocks over the next six months. 

Under the new benchmark, the weight in Chinese stocks will drop to 17.7%, below Taiwan’s 18.5%. 

According to its website, TRS is the biggest public retirement system in Texas and ranks in the world’s top 25. In addition, the Journal of Pensions & Investments ranks the fund as the sixth-largest defined benefit pension plan in the U.S. by 2021 assets. 

According to Bloomberg, Chinese firms listed in the Hong Kong index are the third-worst performing this year. 

TRS refused to say whether the change in its China allocation was triggered by Chinese stocks’ underperformance or political considerations.

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