Why China's Safe stands out for its investment expertise

Dec 20, 2015

China's State Administration of Foreign Exchange faces a huge task managing the world's biggest FX reserves. Appropriately, it has put in place a structure and staff to outdo many of its peers.

AsianInvestor’s second annual Institutional Excellence Awards were introduced to highlight best practice, with awards handed out in 16 institutions collectively managing $3.5 trillion.

The next winner in the category focused on specific areas of expertise goes to China's State Administration of Foreign Exchange for its investment capabilities, after the same institution prevailed in the central bank category last year.

The winners were announced on October 30 and received their awards at an exclusive ceremony and dinner on December 2 at The South Beach hotel in Singapore.

We thank all those who contributed their thoughts to these awards. The full list of write-ups appears in the December issue of AsianInvestor magazine, and more details of our decision-making process can be found here.

Investment capabilities:
State Administration of Foreign Exchange
Fund managers say it has been a tough year for China’s institutional investors. The growth of the country's foreign exchange reserves, after peaking at $3.99 trillion, has begun to reverse. This may not be bad news for Safe, however. Managing the vast inflows of capital has always been a challenge.

The fund has had to respond by putting in place a structure that can handle this awesome responsibility. How does the world’s largest manager of reserves diversify safely? This would be a challenge for any institution, but China’s anti-corruption campaign has made it all the more imperative that Safe be a bastion of professional integrity.

According to managers, Safe has spent a lot of time and thought putting together a structure that is durable and attracts and retains the right kind of talent.

To put it bluntly, this has meant discarding the sort of guanxi (relationship) culture that prevails among many Chinese entities and adopting a professional system, more in line with the nation’s tradition of a merit-based bureaucracy.

The ultimate power and responsibility has shifted to the human resources department, AsianInvestor has been told. While an overweening HR division can be the bane of many an institution, for now it seems to be providing stability at Safe.

HR is not just controlling who does what. It is investing in, and responsible for, training across the organisation, from IT to data to investments. The top management still set out the general goals, but the HR department ensures decisions get implemented. It also reportedly controls access to the top investment officers.

Managers say Safe now has the best-defined goals among China’s big investors and among the best structures of institutions across North Asia. It has the best teams among government-sponsored investment groups and, unlike its peers in Korea or Taiwan, has a coterie of professionals who are fluent English speakers – an important advantage.

Safe remains a low-key organisation, but one that focuses on developing its human talent so it can address priorities. Given the scale of assets, it would be all too easy for Safe to lose track of itself. That it has not, even under testing conditions, is a testament to its quality of management and staff organisation.

2015 winners already unveiled:

Institutional category

Reserves manager: Monetary Authority of Singapore

Sovereign wealth fund: GIC

Insurance company (general account): Ping An Life

Public pension fund: Bureau of Labor Funds

Private pension fund 2015: Jardine Matheson

Endowment: National University of Singapore

Markets category

Australia/New Zealand: the Future Fund

Mainland China: China Life Insurance

Hong Kong/Taiwan: Cathay Life Insurance