British Columbia’s public pension manager has paused direct investments in China, the latest institutional investor to rethink its exposure to the world’s second-largest economy due to geopolitical risks.

A senior executive from British Columbia Investment Management revealed the policy during testimony this week to a Canadian parliamentary committee. Ontario Teachers’ Pension Plan has made a similar move, suspending new investments in private assets in China, Bloomberg reported in January.

BCI still has Chinese investments, mostly through public markets and index funds, amounting to less than 5% of its holdings, the fund said in an emailed statement. “Across our portfolio, BCI has reduced its exposure in China and Hong Kong by approximately 15% over the past two years, including pausing direct investments in China,” it said. BCI had C$211 billion ($158 billion) in net assets under management at the end of March 2022.

The firm, which invests on behalf of public-sector pension plans and insurance funds in Canada’s third-largest province, said its remaining exposure to China is part of a broad diversification strategy that includes emerging markets.

Daniel Garant, BCI’s global head of public markets, faced tough questioning Monday from Conservative lawmaker Garnett Genuis, who alleged the fund has invested in a company involved in surveillance of Uyghurs in China. The company, Hangzhou Hikvision Digital Technology, has denied the surveillance claims.

Mr. Garant said he couldn’t speak about Hikvision specifically but that BCI was talking with index providers. “We’re not very happy with some of the components of the index and we’re doing something about it,” he said.

Ontario Teachers’ executive Stephen McLennan told the same committee his fund’s decision to cease private-asset deals was “driven by our assessment that the risk landscape in China has substantially changed over the last two to three years.” He cited the country’s difficult relations with the U.S. and Canada, as well as regulatory changes within China.

Canada’s largest pension fund, the Canada Pension Plan Investment Board, has stuck to its China strategy and has 9.8% of its assets invested the country. That exposure gives the fund access to one of the world’s fastest-growing major economies, public affairs head Michel Leduc told lawmakers. CPPIB’s holdings include retail and industrial real estate, private equity funds and stakes in businesses including McDonald’s China and Adopt a Cow, a dairy operation.

Relations between China and Canada have been frosty for years, particularly since Canadian authorities arrested a senior Huawei Technologies executive at Vancouver’s airport in 2018 on a U.S. extradition request.

While that situation was resolved in 2021, recent reports that Chinese diplomats sought to meddle in elections, and targeted the Hong Kong-based family of a Canadian member of parliament, have sent tensions soaring again. This week, Canada expelled a Chinese diplomat over the latter allegations, spurring China to boot out a Canadian envoy in response.

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