China's social security fund to triple offshore investment

Mar 10, 2011

The country's largest pension fund plans to raise its exposure to foreign investments, private equity and social-security housing, backed by its $1 trillion-and-growing cash pile.

China's National Council for Social Security Fund (NCSSF) plans to increase its overseas investments from 7% of its portfolio to 20%, while its assets under management (AUM) is set to grow to Rmb1 trillion ($152 billion) by the end of this year and Rmb1.5 trillion by 2015.

NCSFF chairman Dai Xianglong made these points during the annual session of the National People’s Congress and the Chinese People’s Political Consultative Conference this week in Beijing. He did not, however, offer a likely timeframe for the planned boost to the foreign portfolio.

On top of allocating more to overseas markets, the fund will also invest more in domestic social-security housing and private equity. It will also look at how it can improve returns from fixed-income products, with more rate hikes expected this year.

The fund's current AUM is Rmb850 billion, of which 45% is invested in fixed-income assets, 30% in stocks and 25% in private equity.

By the end of last year, NCSSF had received Rmb100 billion of fund injections from state-owned enterprise (SOE) IPOs since it was set up in 2001. Dai says such contributions will boost the fund’s AUM by Rmb20 billion to Rmb30 billion each year.

According to the regulations stipulated by China’s State Council, 10% of SOE IPOs must be transferred to NCSSF.

NCSSF is the biggest pension fund investor in China’s capital markets, and Dai argues that more social security funds investing in the stock markets could reduce market volatility.

The fund uses a wide range of external asset managers, including 22 foreign firms. The first batch of 10 to be confirmed comprises Alliance Bernstein, Allianz, Axa Rosenberg, BlackRock, Invesco, Janus Intech, Pimco, State Street Global Advisors, T Rowe Price and UBS/CICC.

The second batch, confirmed in late 2009, are: Barings and Schroders, which are in charge of investment in Chinese stocks listed overseas (Shenzhen-based Bosera also falls into this group); JF Asset Management, Martin Currie and Principal for Asia ex-Japan stocks; Batterymarch, Morgan Stanley Investment Management and Schroders for emerging-markets equities; and Fidelity, Newton, Prudential and Wellington for global equities.

In December, NCSSF added seven asset-management companies and one securities company to manage its domestic investments: China Universal, Dacheng, Fullgoal, Guangfa, Haitong Fortis, ICBC Credit Suisse, Yinhua and Citic Securities.

Given that the fund now has 18 domestic firms managing its Chinese assets, Dai says there is no such appointments planned this year.