ChinaÆs SSF names overseas investment line-up
The long-awaited international mandates from ChinaÆs pension fund of last resort have been announced in Beijing.
National Council for Social Security Fund (SSF), ChinaÆs Rmb200 billion ($25.5 billion) pension fund of last resort, has announced the winners of its first batch of overseas investment mandates.
For global fund houses, this is easily the most prestigious mandate in Asia ex-Japan to be had this year, and represents not just new business, but a massive boost in reputation and name recognition for managers hoping to do business with the mainlandÆs emerging coterie of institutional clients.
The awards are as follows. BlackRock picked up two mandates, one for currency and one of three available mandates for global fixed income.
Axa Group scored a hat trick, with Axa Rosenberg and wholly owned unit AllianceBernstein both mandated for global equities ex-USA, while AllianceBernstein also won one of the three global bond mandates.
The third global bond mandate was awarded to Pimco. Its parent company, Allianz Global Investors, also won one of three mandates for Hong Kong equities.
State Street Global Advisors, which has done a lot of behind-the-scenes consulting work for the SSF when it was first established, won the third global equities ex-USA mandate.
There were three more mandates in Hong Kong equities, won by Invesco and a joint bid by UBS Global Asset Management and China International Capital Corporation, the Beijing-based investment bank JV between China Construction Bank and Morgan Stanley, which maintains a fund management operation in Hong Kong.
Finally, Intech, a subsidiary of Janus Capital Group, and T. Rowe Price both won mandates for US equities.
Although all of these firms are celebrating huge wins, it is notable that Axa Group, BlackRock and Group Allianz can lay claim to more than half the mandates.
Having a joint-venture fund management company in China may have played a role, but probably not a major one. Several mandate winners have JVs in China, including Allianz Global Investors, BlackRock, Invesco and UBS GAM, while Axa Investments is finalising one. But it appears the SSF emphasised independent asset managers that could demonstrate expertise in a particular asset class.
A prospective list of 100 managers whittled down to 12 by the SSF, which used data from Mercer Investment Consulting. Although some the biggest fund managers active in Hong Kong, including HSBC Investments, JF Asset Management and Schroder Investment Management, were reportedly part of the initial list they failed to win out in the end.
Each mandate is thought to be worth something between $50-$100 million and the total sum awarded by the SSF around $1 billion, but the organisation has declined to specify these, and the winners have been told to keep mum. Fees are said to be typical for an institutional mandate and were not low-balled for the sake of a prestige win by managers. One fund exec says he thinks Mercer played an influential role, because the entire process, which began in May, has felt like consultant-led processes typical in the US and Europe.
According to Stuart Leckie, chairman of Hong Kong consultancy Stirling Finance, details of the specific amounts involved in and fee structures of the mandates are being closely guarded by the SSF, as are performance measures and the timescales over which each mandate will be judged.
But, he says: ôThe award of these mandates is very significant. In selecting the fund managers the SSF would have considered issues including which index to use, how much out performance to specify and the level of tracking error each fund could have. This is very sophisticated stuff and is certain to be just the start of the SSFÆs moves to introduce foreign assets in order to target returns in line with wage inflation.ö
In a statement accompanying outlining the award of the mandates the SSF confirmed that risk control was as much a factor as investment performance in its decision.
One company that received a mandate agreed as Ilex Lam, regional director for Asia Pacific ex-Japan at Janus Capital, says: ôThis is the first time the SSF has appointed overseas managers. We are honoured to receive a mandate as it proves the strength of our risk management structure is accepted by large institutional investors and public pension funds.ö
Other companies expressed similar sentiments. For players like T. Rowe Price, which have no presence on the ground in Asia, or Intech, which has a small retail business, the mandate gives their brands an invaluable entree.
ChinaÆs State Council authorised the SSF to invest overseas in 2004. It technically does not count as part of the qualified domestic institutional investment regime because of its special mandate from Beijing.
The SSFÆs asset size is likely to grow rapidly, thanks in part to proceeds from international IPOs û the ICBC capital raising alone should result in a $1.6 billion transfer û and due to likely moves by the government to centralise more pension assets in the SSF in the wake of the recent Shanghai pension scandal. This suggests that it will only grow as an important source of business for global fund houses. Last year the SSF became the first Chinese institution to grant discretionary asset management mandates to domestic fund managers.
For global fund houses, this is easily the most prestigious mandate in Asia ex-Japan to be had this year, and represents not just new business, but a massive boost in reputation and name recognition for managers hoping to do business with the mainlandÆs emerging coterie of institutional clients.
The awards are as follows. BlackRock picked up two mandates, one for currency and one of three available mandates for global fixed income.
Axa Group scored a hat trick, with Axa Rosenberg and wholly owned unit AllianceBernstein both mandated for global equities ex-USA, while AllianceBernstein also won one of the three global bond mandates.
The third global bond mandate was awarded to Pimco. Its parent company, Allianz Global Investors, also won one of three mandates for Hong Kong equities.
State Street Global Advisors, which has done a lot of behind-the-scenes consulting work for the SSF when it was first established, won the third global equities ex-USA mandate.
There were three more mandates in Hong Kong equities, won by Invesco and a joint bid by UBS Global Asset Management and China International Capital Corporation, the Beijing-based investment bank JV between China Construction Bank and Morgan Stanley, which maintains a fund management operation in Hong Kong.
Finally, Intech, a subsidiary of Janus Capital Group, and T. Rowe Price both won mandates for US equities.
Although all of these firms are celebrating huge wins, it is notable that Axa Group, BlackRock and Group Allianz can lay claim to more than half the mandates.
Having a joint-venture fund management company in China may have played a role, but probably not a major one. Several mandate winners have JVs in China, including Allianz Global Investors, BlackRock, Invesco and UBS GAM, while Axa Investments is finalising one. But it appears the SSF emphasised independent asset managers that could demonstrate expertise in a particular asset class.
A prospective list of 100 managers whittled down to 12 by the SSF, which used data from Mercer Investment Consulting. Although some the biggest fund managers active in Hong Kong, including HSBC Investments, JF Asset Management and Schroder Investment Management, were reportedly part of the initial list they failed to win out in the end.
Each mandate is thought to be worth something between $50-$100 million and the total sum awarded by the SSF around $1 billion, but the organisation has declined to specify these, and the winners have been told to keep mum. Fees are said to be typical for an institutional mandate and were not low-balled for the sake of a prestige win by managers. One fund exec says he thinks Mercer played an influential role, because the entire process, which began in May, has felt like consultant-led processes typical in the US and Europe.
According to Stuart Leckie, chairman of Hong Kong consultancy Stirling Finance, details of the specific amounts involved in and fee structures of the mandates are being closely guarded by the SSF, as are performance measures and the timescales over which each mandate will be judged.
But, he says: ôThe award of these mandates is very significant. In selecting the fund managers the SSF would have considered issues including which index to use, how much out performance to specify and the level of tracking error each fund could have. This is very sophisticated stuff and is certain to be just the start of the SSFÆs moves to introduce foreign assets in order to target returns in line with wage inflation.ö
In a statement accompanying outlining the award of the mandates the SSF confirmed that risk control was as much a factor as investment performance in its decision.
One company that received a mandate agreed as Ilex Lam, regional director for Asia Pacific ex-Japan at Janus Capital, says: ôThis is the first time the SSF has appointed overseas managers. We are honoured to receive a mandate as it proves the strength of our risk management structure is accepted by large institutional investors and public pension funds.ö
Other companies expressed similar sentiments. For players like T. Rowe Price, which have no presence on the ground in Asia, or Intech, which has a small retail business, the mandate gives their brands an invaluable entree.
ChinaÆs State Council authorised the SSF to invest overseas in 2004. It technically does not count as part of the qualified domestic institutional investment regime because of its special mandate from Beijing.
The SSFÆs asset size is likely to grow rapidly, thanks in part to proceeds from international IPOs û the ICBC capital raising alone should result in a $1.6 billion transfer û and due to likely moves by the government to centralise more pension assets in the SSF in the wake of the recent Shanghai pension scandal. This suggests that it will only grow as an important source of business for global fund houses. Last year the SSF became the first Chinese institution to grant discretionary asset management mandates to domestic fund managers.
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