CCB-Principal Asset Management is aiming to utilise the expertise of its two parent companies to target soon-to-be-launched fund of funds (FoFs) products at China's pension fund clients.
Liang Min, the firm’s head of derivatives and quantitative investments, said the new FoFs are likely to begin launching in early 2017. He said the company will leverage on the capabilities of the firm’s Sino and foreign shareholders - China Construction Bank (CCB) and Principal Financial when launching the products. Both have specific experience in pension fund management.
“We are having talks with them and hope to have further cooperation in future,” Liang told AsianInvestor.
One possible team-up for CCB-Principal will be to use its multi-asset capability to run the investment for CCB Pension, the pension unit established last year under China’s second largest bank, he added.
The joint venture fund firm, which manages Rmb245 billion ($36 billion) in assets under management, is also keen to learn overseas experience from US-based Principal Financial, as Liang sees the success of FoF products in US market is driven by pension investments.
“The pension market offers a larger chance for FoF business success,” he said.
In addition to the reserve sovereign pension fund National Social Security Fund (NSSF), China’s retirement system has three pillars, namely the basic public pension fund (PPF), the enterprise annuities (EAs) and upcoming occupational annuities. It is this third pillar that refers to supplementary pension relying on individual savings and commercial pension products.
Liang said the Beijing-based fund firm is eyeing the third pillar pension system by structuring its forthcoming FoFs so that they can be targeted-date and targeted-return products, noting that these are typical features for pension products in overseas.
China has an ageing population and fears are rising that the country needs to be more aggressive in its pension asset accumulation efforts if it is to avoid a major shortfall in years to come. That has led more experts to suggest various means of reform.
The country has been making efforts to respond to this. It has been reforming its first pension pillar PPF this year, enabling existing NSSF external managers and EA-eligible managers to pitch for new PPF mandates.
Industry participants expect the upcoming FoFs and multi-asset capabilities to potentially solutions such pension fund investments in the future. CCB-Principal is not yet eligible to pitch the first batch of PPF mandates this year.
The China Securities Regulatory Commission (CSRC), the mainland’s fund industry watchdog, gave a greenlight in September for fund houses to structure FoFs as a bid to develop their multi-assets capability. One of the regulator’s goals for FoFs and multi-assets development is to service the country’s pension fund needs.
“The best development in the US pension reform since 2006 has been life-cycle products, which use a FoF structure,” said Zhong Rongsa, the deputy chairman of Asset Management Association of China (Amac), a self-regulatory body under the CSRC, in July.
Other reform efforts are also being urged. In July Li Chao, a vice chairman at the CSRC, used his speaking spot in a pension fund conference to urge the central government to reform the country’s third pillar pension system by offering tax benefits for voluntary contributions and a greater variety of low-cost investment products.
Fund companies have not yet submitted applications to seek CSRC approval for their FOFs in plans, mainly because the regulator has set a high barrier for the investment team build-out. It requires fund firms to establish a separated new investment team while portfolio managers register with Amac after they pass the exam which specifically designed for FoFs. The first exam was firstly took place on October 27.
Liang expect the first batch of FoFs will be approved and launch in market in the first half of 2017.