China Construction Bank Pension Management (CCB Pension) has won a licence to manage Chinese enterprise annuity assets – the first handed out since 2007 – as Beijing’s public pension fund (PPF) reform gathers momentum.
Meanwhile, fund managers are eyeing potential business, as China's National Council for Social Security Fund (NCSSF) is set to grow into a retirement asset pool rivalling Japan's $1.2 trillion Government Pension Investment Fund. NCSSF was $234 billion in size as of end-2014.
On January 15 CCB Pension, a joint venture between CCB and NCSSF, received approval to manage enterprise annuities (EAs) – China’s equivalent of the US’s 401k plan – from the ministry of Human Resources and Social Security (MoHRSS).
With this licence as an EA trustee and account manager and CCB’s existing licence as an EA custodian, the JV has become the first stand-alone pension company (ie not an asset manager or an insurance-owned provider) to secure all the approvals for managing EA investments in China. Set up in November, it reportedly sees building an investment team as its next key challenge.
CCB Pension set out its plans last week. As a services solution provider for EAs, the second of three pillars under the mainland retirement system, the firm aims to be one of the investment managers for China’s public pension fund (PPF), the first and largest pillar.
The MoHRSS intends to implement its planned PPF reforms this year by handing out investment mandates to external asset managers via the NCSSF. It may also mandate pension companies such as CCB Pension, currently the only one approved approved by the State Council. Shanghai-based consultancy Z-Ben Advisors believes CCB Pension is very likely to receive mandates from NCSSF and MoHRSS directly.
Li Zhong, an MoHRSS spokesperson, said on January 22 that the ministry would be undertaking necessary procedures to ensure investment operations could begin this year. This includes collecting and coordinating the required information from local governments, drafting mandate contracts and setting policies in risk management.
Once such procedures are complete, the MoHRSS will be able to start awarding mandates to the NCSSF, which in turn can run some of these assets itself or hand them out to external managers. A government think tank has said NCSSF would need to hire at least 20 domestic fund houses for the PPF, as the government could hand out up to Rmb2 trillion ($304 billion) in mandates.
While Chinese asset managers are well positioned to benefit from this asset growth, foreign players can also benefit. PPF will eventually look for overseas allocations, rather like NCSSF and Chinese insurers ultimately did, said Cheng Tan-Feng, head of Greater China at BNP Paribas Investment Partners.
However, CCB Pension needs to build an investment team before it can manage PPF assets. Feng Liying, the firm’s president, foresees hiring, retaining and assessing staff as key challenges if the JV is to develop as a professional pension company, reported China Business News on January 27.
The JV plans to recruit talent from mutual fund companies, brokerages and consultancies to add to the staff in CCB’s existing pensions department. It did not respond to queries about likely future headcount. Feng was also quoted as saying the firm intended to build a system to assess investment performance in a bid to maintain competitiveness against its peers.
CCB Pension’s receipt of the EA investment licence also indicated that China’s pension reform was accelerating, noted Z-Ben. It is the only institution to have won approval to manage EA assets since November 2007, when the authority gave the green light to three insurers’ pension divisions – China Life Pension, Chang Jiang Pension and Taikang Pension.
A total of 20 firms are licensed by the MoHRSS for managing EA investments: 11 fund houses, four insurance companies’ pension units, three insurers’ asset management arms and two brokerage firms. They managed Rmb874 billion between them as of last September, according to the ministry.
CCB Pension did not respond to requests for further comment by press time.