The National Social Security Fund (NSSF) has already invested $1.6 billion outside of China, says FTSE Group senior adviser Stuart Leckie, who also advises the NSSF. Leckie says the total book value of the fund is RMB500 billion ($67.7 million).

ôNSSF has benefited from getting part of the proceeds from international listings, so the NSSF had hard currency,ö Leckie says, ôMost of the money is still in Treasuries and cash. Quite a lot of money is in Chinese equities."

The NSSF made its international fund allocation prior to the retail QDII flows. Last year, it received over 100 proposals from various fund managers for its first outward investment. It has given 10 mandates to two managers for each asset classes, including Hong Kong equities, US equities, global ex-USA equities, global bonds and cash.

ôThey are very sophisticated by Chinese standards,ö says Leckie, ôThey wanted to specify maximum tracking error.

Leckie says the NSSF is benchmarking its investments to the FTSE-Xinhua Hong Kong Index, and its objective is to generate outperformance after fees.

ôThe chairman has indicated more money will be invested internationally,ö he adds, noting that overseas allocation can be increased from the 3% to 20%. Conventional funds, even alternative investments, private equity and hedge funds of funds will be considered. However, the NSSF will only go for long-only portfolios as its policy forbids it to invest in derivatives.

The NSSF was named Institutional Investor of The Year by AsianInvestor in May 2007.