China PPF mandates to be awarded this year

Mainland provinces are set to sign contracts with the National Council for Social Security Fund, which will hand portfolios to firms approved to run public pension fund assets by late December.
China PPF mandates to be awarded this year

The first batch of investment mandates under China's forthcoming public pension fund (PPF) programme are to be handed out this year, the mainland government announced yesterday (October 25). This is slated to happen as provincial governments sign PPF contracts with the National Council for Social Security Fund (NCSSF).

The selection of asset managers has not yet started, but mainland fund houses believe the NCSSF may appoint external managers within two months of finalising preparations for the PPF scheme.

The government has drafted the mandate contracts with the NCSSF, but has to finalise the policies and rules for custodians and the manager selection process, and study the asset allocation plans, said Li Zhong, a spokesman for the Ministry of Human Resources and Social Security (MoHRSS).

The MoHRSS, which supervises the PPF, estimated that around Rmb2 trillion ($295 billion) of the Rmb3.56 trillion of total urban and rural PPF assets would be centralised under the NCSSF for investment into financial assets. This will represent a shift from the current approach, whereby the pension assets are mostly sat in bank deposits. Local governments will keep the rest of the PPF pool in cash for short-term fund distribution.

The NCSSF has set up two new departments and is hiring in preparation for manaing the PPF assets, which will be centralised under its control this year, as reported in May. It could appoint up to 20 asset managers to manage PPF mandates, said Zhen Bingwen, director of the Centre for International Social Security Studies at the Chinese Academy of Social Sciences.

Managers could be chosen and appointed within two months of preparation being complete, said a Beijing-based marketing head at a fund house. His firm is one of the appointed managers for the National Social Security Fund.

A total of 16 domestic asset managers and two brokerages* were mandated by the NCSSF to manage part of the country’s national retirement fund. They are expected to be the first batch of firms to receive PPF mandates, and more are likely to be appointed, Zheng has said.

Several provinces have decided the size and formed an initial plan for their PPF mandates, noted MoHRSS’s Li, without giving the names.

The NCSSF has already received two mandates of Rmb100 billion each from wealthy provinces Guangdong and Shandong, in 2012 and 2015, respectively. Other wealthy provinces, such as Jiangsu, Shanxi, Sichuan and Zhenjiang, and cities including Beijing and Shanghai, are likely to be next to award mandates, as they have each accumulated more than Rmb100 billion in PPF contributions, as reported.

China’s PPF reform has came a long way fairly swiftly. It was widely discussed during the National People’s Congress in March last year. The MoHRSS issued a consultation paper on the proposals in June last year, which received a green light from the State Council in August, allowing the PPF to expand its investment scope.

China’s State Council issued another set of documents in March this year setting out the investment and operating rules, allowing the NCSSF to receive PPF investment mandates from provincial governments. Up to 30% of PPF assets can be invested in domestic risky assets such as public equities, equity funds, balanced funds and equity-centric pension products.

*The 16 Chinese fund houses are, in order of existing NSSF mandate size: Harvest, ChinaAMC, Bosera, E Fund, ICBC-Credit Suisse, China Southern, Penghua, HFT, Fullgoal, Yinhua, GF, China Merchants, Guotai, Chengsheng, China Universal, DaCheng. The two brokerages are CICC and Citic Securities. 

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