China’s National Council for Social Security Fund shrank its overseas allocation last year due to performance concerns, but at the same time added domestic external managers, in a move that bucks the trend among Asian institutional investors.
The manager of the country's $291 billion reserve pension fund allocated Rmb113 billion ($17.2 billion, or 5.93%) of its Rmb1.9 trillion portfolio, in overseas assets at end-2015, down from Rmb131 billion (8.5%) of its Rmb1.5 trillion portfolio at end-2014.
NCSSF, manager of the National Social Security Fund (NSSF), said on Friday that it adjusted and improved its overseas investment mechanism last year. It also reviewed its foreign external managers’ performance, with a particular focus on restructuring overseas equity mandates, to strengthen and improve its external mandates.
The council did not indicate whether it had terminated any overseas mandates, but a Hong Kong-based institutional fund sales head had told AsianInvestor in September that the NCSSF was not satisfied with some overseas managers’ performance.
NCSSF has at least 37 foreign firms running foreign assets. In the most recent round of offshore mandates – issued in December – it handed portfolios to Amundi and Vanguard and the Hong Kong arms of China's DaCheng and China Universal, as reported.
Despite a cut in foreign assets, which are mainly managed externally, NCSSF raised the amount of AUM it had with domestic managers last year. The fund had Rmb1 trillion (54.11%) outsourced in 2015, versus Rmb 764 billion (49.74%) in 2014.
This goes against the trend among institutional investors in China and wider Asia in recent years, as many – such as insurers and state funds in China, Korea and Japan – have sought to boost offshore allocations in a bid to boost returns.
In an article published by state media People’s Daily on May 30, NCSSF chairman Xie Xuren said the council would strengthen supervision and improve performance assessment indicators for external managers this year.
Xie added that the council would expand the investment scope of its fixed income portfolio, restructure its equity analysis processes and broaden its range of equity-type products run by external managers.
The fund is looking to add interbank negotiable certificates as part of its plan to use “innovative” fixed-income strategies, amid falling yields from traditional debt products, as reported.
It returned 15.14% in 2015, largely driven by its exposure to direct stock investments and private equity funds, to which NCSSF aims to allocate more to improve returns. This was the institution's best performance in six years and contributed to a growth in assets of 19.5% to Rmb1.9 trillion in 2015, from Rmb1.5 trillion in 2014.
NCSSF has also set up two new departments in preparation for the public pension fund mandates it will receive from the Ministry of Human Resources and Social Security. It is managing Rmb119.6 billion in mandates from Guangdong province and Rmb53.7 billion in mandates from Shandong province.
NCSSF could not be reached for comment by press time.