There are at least 21 state and local public pension funds that could be affected by the recently approved law forcing a sale of TikTok.

Congress recently passed a law requiring TikTok be sold or shut down within the next nine to 12 months. While the legal fight over this legislation is likely to complicate the process, it is conceivable that a forced sale will happen. If that does occur it will have some kind of affect on the investors in ByteDance, the parent company of TikTok. And among those investors are at least 21 public pension funds who collectively manage assets for over 50 state retirement plans and over 30 municipal retirement plans.

This article: (1) lists known public pension fund investments in ByteDance, (2) summarizes the potential issues that this forced sale will create for pension funds with exposure to ByteDance, and (3) provides context for the limited transparency related to these kind of public pension investments with private equity firms.

Who is invested in ByteDance?

The following pension funds (e.g., institutions that manage money on behalf of a public retirement system or public retirement plans) have a known investment with a private equity fund, which in turn has a known stake in ByteDance.

All of these pension funds invested as part of a late-stage venture capital round, in 2017 or 2018. None of the public pension funds explicitly say they are invested in ByteDance in their reports. However, when we cross reference (a) the private equity fund names they do list they are limited partners in, with (b) information about who has invested in ByteDance, then (c) we can link them together.

wdt_ID Public Pension Fund Private Equity Fund that has Invested in ByteDance ByteDance Fundraising Round
1 Colorado Public Employees' Retirement Association TCV VIII 2018 Late Stage VC
2 Colorado Fire & Police Pension Association TCV VIII 2018 Late Stage VC
3 Iowa Public Employees' Retirement System TCV VIII 2018 Late Stage VC
4 Los Angeles City Employees' Retirement System TCV VIII 2018 Late Stage VC
5 Los Angeles Fire and Police Pension System TCV VIII 2018 Late Stage VC
6 Maine Public Employees Retirement System TCV VIII 2018 Late Stage VC
7 Massachusetts Pension Reserves Investment Trust TCV VIII 2018 Late Stage VC
8 Nevada Public Employees Retirement System TCV VIII 2018 Late Stage VC
9 New Jersey Division of Investment TCV VIII 2018 Late Stage VC
10 North Carolina Retirement Systems TCV VIII 2018 Late Stage VC


Are these public investments in ByteDance a problem?

There is no inherently good or bad reason for a public pension fund to be invested in a Chinese technology company.

It is reasonable for large and sophisticated pension funds to have a diversified private capital portfolio that includes internationally managed companies. At the same time investing in companies whose value depends on part on Sino-U.S. relations is a risky bet. Just as dozens of American pension funds found with their Russian-based investments, sometimes the value of your stake in a company or foreign asset can be influenced more by foreign policy than fundamentals.

This is not to say that politics should drive public pension investments—instead, this framework highlights that even pursuing a pure fiduciary mindset with respect to public pension returns requires recognizing political contexts. Maybe an investment in ByteDance is worth the risk. Or maybe there are enough other reasonable gambles that these state pension funds could have focused elsewhere.

Ultimately, any decision taking these trade-offs into consideration will come down to the trustees of state pension funds—which range from sole-fiduciary models (like the North Carolina State Treasurer) to investment commission trustees to pension board members who act as trustees for administering benefits and managing investments. But pension fund trustees can only weigh up the trade-offs of Chinese technology investments if they know they are invested in ByteDance in the first place… and it is not entirely clear that all trustees of these 21 public pension funds know they have an effective investment in TikTok.

Capital is typically allocated to private equity funds based on the quality of the capital management company and the strategic intent of the fund itself (eg, focused on growth or buyouts, focused on a particular industry or region). It is unclear how many public fund trustees review the portfolio companies their money winds up being investing in.


Are these the only pension funds invested in ByteDance?

This is not necessarily a comprehensive list of public pension funds with a stake in ByteDance due to a lack of robust investment transparency. Our data is taken from publicly available reports — and some pension funds are better at investment transparency than others:

  • Pension funds with the best private equity transparency (ex. CalSTRS) report all of their limited partner stakes, investment performance details, status on each commitment and money returned, plus notes on the investment strategy and industry focus for their funds they’ve invested in.
  • Pension funds with partial private equity transparency (ex. Colorado PERA) report their limited partner stakes with investment performance and/or cash flow details, but limited strategy or industry information that could explain what a given private equity fund is investing in. Sometimes the private equity funds listed by a state retirement system are just a string of abbreviation letters that are meaningless without context.
  • Pension funds with zero transparency (ex. Ohio STRS) won’t show up on our list because they don’t publish any details on the private equity investments that they make.

Moreover, many capital management firms aren’t open with their investments. So there are instances where we know what private equity funds a state retirement system has invested in, but we don’t know what companies the private capital was invested in.

This transparency problem isn’t particular to finding out who is invested in ByteDance/TikTok. Its a general issue with understanding where public pension funds are investing their money—which isn’t a small matter since over 10% of U.S. public pension fund assets are in private equity now. This lack of transparency is also confusing because there is no meaningful competitive advantage to keeping this information a secret. Large pension funds like CalPERS and New York State Common Fund are comfortable being open with the public about their investing since there is no correlation between secret private equity investing and better public pension returns.

Public pension fund managers might not like scrutiny of their investments — such as this article — but they are managing money in the public trust, so that’s not their prerogative.


How will these pension funds be affected by a forced ByteDance sale?

It is likely that this effort to force a sale of ByteDance is going to have a more of a strategic affect on future public pension fund investing than a financial effect today.

Whether or not a sale happens, this entire process will shape the investment calculus of all U.S. institutional investors, including public pension funds, as they consider the risks of investing in Chinese controlled companies. This could easily influence billions in future investment decisions.

On the flipside while forcing the sale of TikTok will have a financial effect on the investors in ByteDance, it is likely that effect will be small in dollar terms:

  1. The allocations to each private equity fund in the list above are generally between $25 million and $100 million. Those dollars in theory are supposed to be increased with large returns, but even if the money was doubled the assets at stake would likely be under $200 million. And only a portion of each fund’s dollars will be invested in ByteDance in the first place—as each private equity fund has a range of companies it has invested in.
  2. Together, these 21 public pension funds are managing hundreds of billions for nearly 100 retirement plans. The exposure of a given pension fund to a TikTok sale is less than 1% (if not far less) of assets under management.

However, just because this specific stake is small doesn’t mean that it does not matter. Virtually every investment that large, multi-billion dollar, highly diversified pension funds make is a tiny share of their total assets. If we didn’t care about an investment because it was small, there would be a risk of ignoring or not caring about every investment a pension fund makes.

Whether the effect of a forced sale of TikTok is positive or negative heavily depends on what the “sale” looks like: Do the terms value ByteDance higher or lower than current or forecasted valuations? Does a spin out of TikTok change the ownership of ByteDance itself? Does a sale lead to an exit for the private equity firms that hold a stake in ByteDance or is their ownership transferred to the buyer?

Whatever the outcome, the simple reality is that there are taxpayers and public employees across the country who have a stake in the outcome of this process of forcing a ByteDance sale.


What matters going forward

The clear lesson for state and local pension funds from this federal initiative to force a sale of ByteDance is a reminder that there are serious geopolitical risks to certain kinds of investments. In theory these risks should have been known to any pension fund trustee that allocated assets to a private equity fund manager that was given the latitude—if not direction—to invested in Chinese-controlled technology companies. But its also possible the reality of those risks might not have been seriously considered (much like the potential risks of Russia-based investments might not have been seriously considered in the years after the annexation of Crimea but before the Russian invasion of Ukraine). So going forward here are three things for all stakeholders in public retirement plans to consider:

  1. Do all appropriate stakeholders for each of the 21 pension funds above understand the specific kind of risk taken with an investment in ByteDance?
  2. For any one of these funds do the risk/reward trade-offs from that investment lean toward this being an appropriate allocation given other possible investment opportunities?
  3. Are there other public pension funds with this investment we don’t know about because of data transparency limits?

Ultimately, public pension fund investments in TikTok shouldn’t be over the politics of the social media platform. This isn’t a matter of “China bad” or “China good” or “social media is bad for kids” (any of those views can have reasonable debate merits). The issue is the weight of the geopolitical risk associated with technology investments in companies where Sino-US conflict can affect the value of a business in a way that is outside the normal business operations of a company. And then how that risk weight should be assessed by pension funds that are managing assets in the public trust.