China’s PPF scheme to have “low” equity allocation

Investments under China's new Public Pension Fund scheme will be more conservative than those of the National Council for Social Security Fund, says NCSSF chairman Lou Jiwei.
China’s PPF scheme to have “low” equity allocation

The National Council for Social Security Fund (NCSSF), which manages China's state pension assets, has set a bold target of 95% as the probability of positive investment returns from its new public pension fund (PPF) scheme, reported China News Service, a state-owned agency.

Given the current low-yield investment environment, that may be no simple task.

To achieve it, the PPF portfolios will have a low allocation to equities, said NCSSF chairman Lou Jiwei on March 15 during meetings at the fifth National People's Congress in Beijing, which ended today.

He did not provide details of what percentage of the PPF portfolio could or would be invested in equities. He said only that saving deposits were the least volatile products, followed by bonds, and equities were the most volatile.

The PPF, which incorporates mandates handed to NCSSF by individual provinces for a relatively short tenures – typically five years – cannot tolerate as much volatility as the main National Social Security Fund, Lou said.

It would be more difficult to make up a big loss in one year over the five-year tenure, so the investments for PPF are more conservative, he noted.

That will mean the PPF scheme achieves lower returns, Lou admitted. He gave the remarks in an interview with media at the Congress.

Mandates so far

NCSSF has signed mandates contracts with seven provinces and municipal authorities, which will hand Rmb360 billion ($52 billion) to the fund to manage, said Lou, of which it has received Rmb137 billion so far.

“Some of the [PPF] money has already been invested in the equity market,” Lou said. NCSSF reportedly made its first equity investments for PPF at the end of February.

Despite the PPF's more conservative approach, the government is open to the idea of widening the scheme's invesment scope to private and overseas markets, AsianInvestor revealed late last month.

The PPF scheme is a large institutional business opportunity that asset managers will work hard to tap, a marketing head at a big Chinese fund house told AsianInvestor.

The $276 billion NCSSF in December named 21 domestic houses* to help manage the new PPF scheme.

Lou became NCSSF chairman in November last year, replacing Xie Xuren, who has retired. Before that Lou was China’s finance minister and was succeeded by Xiao Jie, former deputy secretary-general of the State Council.

NSSF said it had generated annualised performance of 8% over the past 15 years and 15.19% in 2015, which was largely driven by its exposure to stock investments and private equity funds.

But other state investors, including Singapore’s GIC and Australia’s Future Fund, have admitted that yield will be harder to come by in the coming years.

* Of the 21 managers selected for the PPF mandates, 14 are domestic fund managers: Bosera, ChinaAMC, China Merchants, China Southern, China Universal, DaCheng, E Fund, Fullgoal, GF Fund, Harvest, HFT, ICBC-Credit Suisse, Penghua and Yinhua.

NCSSF has also hired three annuities/pension managers (Ping An Annuity, China Life Pension and Changjiang Pension), three insurance investment arms (Taikang Asset Management, PICC AM and Huatai AM) and one brokerage (Citic Securities).

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