China’s NSSF eyes move into infrastructure

China’s National Social Security Fund (NSSF) aims to allocate to state- and privately backed infrastructure, in a bid to broaden its investment scope and boost returns. It is reportedly likely to do so via upcoming industrial, equity-based investment funds and may also make direct and co-investments.

The Rmb1.59trillion ($287 billion) state pension can not only obtain higher yields and a steady income from such assets, as compared to traditional investmen, but state-controlled infrastructure projects are also relatively low-risk, said Red Pulse, a Shanghai-based market intelligence firm, in a note.

The central government and NSSF are in talks about how the fund can invest in infrastructure projects, said Zhang Yong, vice-minister of the National Development and Reform Commission, quoted by local media. 

NSSF might allocate to industrial equity investment funds, which the government has encouraged domestic banks and insurance companies to launch to expand the investment scope of mainland asset owners. China's State Council issued a document last month asking banks, insurers and other domestic institutions to support infrastructure projects via debt, equity, asset-backed securities and other instruments.  

Zhang reportedly said NSSF would focus on investing in new technology industries, which will be targets for some of the planned industrial funds, to help finance development in those sectors. 

NSSF is also exploring the possibility of making direct investments in infrastructure, he added.

Infrastructure is becoming increasingly popular among Chinese asset owners. Morgan Stanley Infrastructure’s latest global fund, which closed at $3.6 billion in February, saw a big rise in flows from mainland institutions compared to its previous strategy. Chinese insurers now represent some of MSI’s biggest limited partners, Mark McLean, the firm’s Asia-Pacific head, told AsianInvestor.

Meanwhile, NSSF has been allocating more to private equity funds to enhance returns since making its first investments in such assets in 2012. The latest example is its May co-investment with the investment arm of Nanjing’s municipal government in the Rmb10 billion Jiangbei Infrastructure PE fund, which will finance a green project in the city. NSSF has a 40% stake in the PE fund.

NSSF vice chairman Wang Zhongmin said in February that it would allocate to private equity both directly and via funds, as it continues to raise its alternatives exposure, as reported.

The fund returned 15.14% in 2015, largely driven by its private equity exposure. It has not disclosed its allocation to PE funds, but it generated a Rmb3.4 billion return on its PE fund investments in 2015, a 158% rise from 2014, according to its annual report in June.

NSSF did not respond to requests for comment by press time.