Hewitt, CDPQ tipped to win China pension mandates

May 7, 2002

The ADB, which is reviewing bids, will make its final decision in three weeks.

Two consultants have won mandates to provide advice to China's emerging pension system by the Asian Development Bank, which made the selection in cooperation with the Ministry of Finance and the provincial government of Liaoning Province, according to industry officials.

The wins by Hewitt Associates and Canadian pension fund Caisse des Depots et Placements du Quebec (CDPQ) mark a concrete step for building a fully funded pension system in China - a key plank of Premier Zhu Rongji's economic reform programme - and will soon lead to mandates for fund managers to handle system money.

At this stage the ADB's decision is not formal. Market sources say it is now negotiating financial arrangements and contracts with Hewitt and CDPQ, with a public announcement expected in about three weeks. Hong Wei, senior financial economist at the ADB in Beijing, previously told FinanceAsia the ADB will pay a combined $1 million for the work.

The first mandate, won by Hewitt, is to advise the Liaoning government. This rustbelt province in the Northeast is the scene of an experimental programme to create a fully funded pension scheme at the provincial level. Hewitt's Asia CEO is Hong Kong-based Stuart Leckie, a pension expert who has worked before with multilateral institutions and has served in the past as regional CEO at Watson Wyatt and Fidelity Investments.

The second mandate, won by CDPQ, is to help the National Council for Social Security Fund handle its assets, including advising on implementation of asset allocation, fund manager selection and back-office operations. The National Council has been established as a nationwide provident fund to fill provinces' and municipalities' retirement benefit gaps. It is said to have an initial Rmb80 million (about $1 million) under management, sourced from state budget transfers. More assets will be gathered from privatizations and other methods, possibly including a lottery. The National Council's key staff are currently being trained by Principal Insurance.

CDPQ is the civil service pension fund of the Quebec provincial government, and is one of North America's biggest. It also has a consulting arm, which is now not only advising the National Council but also Korea's National Pension Corporation. CDPQ is said to have close ties to the ADB, which in previous reports to the Chinese Ministry of Finance recommended China follow Canada's pension model most closely. Canada has a successful pension system based on American-style free markets infused with European socialism. CDPQ also has a direct equity business and an office in Hanoi that directs it in Southeast Asia.

It is expected that Hewitt and CDPQ will have to coordinate their efforts, as the Liaoning experiment and the National Council are two sides of the same coin, but to what extent they know each other is unknown to industry players. In theory, however, they will be advising on what will in time become the region's biggest institutional investor, although international fund management mandates from the National Council aren't expected for a number of years.