China's NCSSF tipped to issue more overseas mandates

China’s social security investment council NCSSF has been tipped to hand out more mandates with a higher overseas exposure this year.

It comes as NSSF, the fund managed by NCSSF, announced its highest annual returns in five years, which was boosted by an increase in outsourced mandates.

And with a Chinese province recently handing over a mandate to NCSSF, the body’s total assets look set to continue to grow.

The National Social Security Fund saw annual returns of 11.69% in 2014, it was announced late last week in the National Council for Social Security Fund’s annual report.

The NCSSF saw its total assets grow 23.7% to Rmb1.54 trillion ($248 billion) at the end of last year, from Rmb1.24 trillion at end-2013. Among its total assets under management, both onshore and offshore external outsourcing rose 67.7% to Rmb763.8 billion, representing 49.7% of its AUM, up from 46.1% at end-2013.

The NSSF grew its total assets by 18% to Rmb1.17 trillion last year, with annual returns of 11.69% beating its average-year returns of 8.38% since the fund was established in 2000.

Shanghai-based consultancy Z-Ben Advisors attributed the growth to the stellar performance of the NCSSF’s outsourced domestic and Hong Kong equity managers, but is possible that more mandates will be handed out by the NCSSF this year as no offshore mandates were forthcoming in 2014. Such mandates are likely to be consistent with what they have issued in the past, usually in a three-year period, the consultant added.

“[NCSSF is] rewarding managers that have shown strong returns, culling those that have disappointed; and issuing mandates to a range of new managers for future cherry-picking and pruning should their performance not measure up,” noted Z-Ben.

In all, foreign exposure accounted for 8.5% of NCSSF’s AUM at the end of 2014, far more than Chinese insurers’ average of 1.44% in overseas exposure. The NCSSF has been issuing global mandates since 2006, which have mainly been for fixed income and equities in public markets, but NSSF is expected to be allowed to venture into overseas alternatives. 

Earlier in April, the State Council announced plans to expand the NSSF’s investment scope due to its asset growth and diversification needs. The central government will allow NSSF to raise its investments in corporate bonds and municipal bonds to 20% of its portfolio, up from 10%; allow direct investments in state-owned enterprises and private firms; allow its exposure in trust loans up to 10% and to invest in interbank deposit certificates.

The NCSSF’s total assets are likely to surpass Rmb1.64 trillion after Shandong province handed it a five-year mandate of Rmb100 billion in late March, in a bid to boost returns in the provincial public pension fund (PPF) pot. Shandong followed Guangdong, which handed out a mandate in February 2012; that mandate generated returns of 6.73% in 2012, 6% in 2013 and 10.7% in 2014, far higher than PPF’s average return of 2.5% over the past five years. The Guangdong mandate has been extended to the end of 2017, according to the provincial government.