AMP Capital’s international CEO sees strong growth prospects for its venture in China as a 20% shareholder in China Life Pension, the country’s largest provider of pension products for the corporate and private sector markets.
Anthony Fasso, chief executive, international, at AMP Capital in Hong Kong, told AsianInvestor that the firm’s China business was proceeding apace via its key strategic relationship.
And with pension growth in China averaging an annual rate of 26% over the past five years, expansion of the lucrative market looks set to continue.
In late October last year, AMP took a 20% stake in China Life Pension (CLP), the largest pension asset manager on the mainland, for $190 million.
“It is the first time a politically sensitive and crucially important sector of the economy has been opened up to a foreign player,” Fasso told AsianInvestor.
He said the good thing about CLP is it is an existing business, set up in 2006 to provide enterprise annuity (EA) products to state-owned and private enterprises. It is one of only five pension insurance companies in China, the others being Ping An, Taikang, Changjiang and Taiping.
When AMP’s stake purchase was announced late last year, China Life group chairman Yang Mingsheng said: “China Life Pension will provide a significant contribution to the Chinese social security system.”
Fasso said asset growth in this market has been around 26% a year during the past five years and is expected to continue, owing to a significant ageing of China’s population. The 65+ age group is anticipated to double over the next 15 years, as more than 100 million people enter this age bracket.
Through its initial 15% stake in China Life Asset Management, AMP is also helping build out locally-distributed mutual funds on the mainland. The venture launched its first mutual fund in January 2014, followed by three other funds last year. Its money market fund has raised more than $3 billion to date.
China’s pension system includes four pillars: the Public Pension Fund (PPF), Enterprise Annuities (EA), commercial pension insurance and the National Council for Social Security Fund.
The PPF comprises public pension funds for urban workers, rural residents and public servants. According to data from Z-Ben Advisors, by the end of 2014 the AUM of the urban workers PPF (the largest component) was Rmb3 trillion ($485 billion). According to Z-Ben estimates, the total coverage ratio of the PPF programme is approximately 78%.
China’s EA market represents the second pillar, a voluntary system provided by the employer. According to end-2014 data on EA participation from the Ministry of Human Resources and Social Security, there were 73,000 enterprises participating in EA with 23 million members. EA assets under management totalled Rmb607 billion as of June 2014.
AMP group chairman Craig Meller has predicted that this year, the EA market will overtake the equivalent size of the Australian employer-sponsored superannuation sector, which has been in operation far longer but which obviously doesn’t have quite the membership numbers that China can muster.
The EA concept is now being expanded to other sectors, including government employees, civil servants and NGOs, some of which, Fasso points out, have as many as 5 million members.
According to Oliver Schuurman, an analyst at Z-Ben, insurance and pension assets under management are forecast to reach a combined Rmb33 trillion by 2020, with opportunities for both onshore and offshore involvement from foreign companies.
“What is critical to note,” he said, “is that the current size of this market, and our current growth projections, are without taking the as-yet unknown impacts of pension reform into consideration. Regulators have now turned their attention to this problem, and the solutions that emerge over the next five years will present considerable upside for all segments.”