How the world's big pension funds view China

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Hot money may be flowing out of China's markets amid a persistent economic slowdown, but slower-moving institutional money is taking a longer view.

"China is absolutely critical in anyone's portfolio," Adrian Orr, chief executive of the New Zealand Superannuation Fund, a pension fund with around $29.5 billion in assets, told the Milken Institute's Asia Summit last week.

The fund is overweight emerging markets, with around 12 percent invested there, he said.

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"A big chunk is China and China exposure. And we're very comfortable with that," he said, noting the fund's long time horizon. "We have no alternative. It's a huge part of the growth engine of the world."

That's despite China's economic data painting a downbeat picture recently. Earlier this week, the preliminary Caixin China purchasing managers index for manufacturing came in at a more than six-year low. Additionally, the Asian Development Bank on Tuesday cut its estimate for China's growth to 6.8 percent for 2015, from a previous forecast of 7.2 percent, and below 2014's 7.3 percent rate.

Concerns over the mainland's economy have been exacerbated by sell-off of about 40 percent in its share markets over the past few months. The fears were heightened after China's regulators took a series of dramatic measures to boost the stock market, including large-scale share purchases, that had the unintended effect of denting confidence in the government and spurring criticism that the incident was badly mishandled.

"This is just a standard path of volatility," Orr said of China's bumpy markets and regulatory missteps. "Absolute growth will continue in these parts of the world."

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Other institutional investors aren't so sure.

"It has been my biggest concern in our global portfolio," Hiromichi Mizuno, chief investment officer for the Government Pension Investment Fund of Japan, which had around 137.48 trillion yen ($1.14 trillion) under management at the end of fiscal 2014. He's particularly skeptical of China's economic data.

"I started feeling like people just started trying to justify and kind of fooling ourselves saying 'it should be ok,' so just coast on the volatility," he said at the Milken conference. He also expressed concerns over how China handled the recent market volatility.

"I was very disappointed because I used to believe in one thing, which is the people I see at the senior operational level [in China], they are all U.S.-educated or U.K.-educated," Mizuno said. "I thought they knew how to handle a capital market, but the things we saw recently is not showing that…They are making a lot of decisions which are difficult to understand by outsiders."

But he noted that his fund's efforts to reduce emerging market exposure, particularly ahead of the expected interest rate hike by the Federal Reserve later this year, had been somewhat undermined by his active manager taking risks in the segment.

Others still see opportunity in China, but are looking beyond the public markets.

"In China, there are some great businesses, particularly focusing on consumption and the consumer, where they've got a niche and they're starting, but this downturn in the markets has constrained their access to capital," Gordon Fyfe, chief investment officer at pension fund British Columbia Investment Management, which has around $130 billion under management, said at the conference. But he noted that his fund was currently underweight in this area.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1