Although most fund managers have already factored in expected declines of activity from China's major institutional investors, the level of activity may be even less, warns Shanghai-based consultancy Z-Ben Advisors.

Z-Ben's forecasts of the amount of assets to be deployed to third parties by Chinese state institutions, and the speed with which mandates are given, have been reduced.

It now estimates total assets of such funds -- notably the China Investment Corporation and the National Council for Social Security Fund -- to rise to only $295 billion by the end of 2010. This is a far cry from heady expectations that their AUM would soar to $700-800 billion just a year ago. The global recession has caused a steep decline in their accumulation of sterilised foreign reserves.

On the plus side for fund managers, however, Z-Ben expects the proportion of their assets mandated to third parties will grow to roughly half the total AUM, up from around one-third today.

Nonetheless, the drop in expected AUM means the number of managers required by CIC, in particular, has fallen. A year ago, it looked as though the CIC would need over 100 managers to handle its treasure. Now the number is around 60. That's a lot of firms that will end up getting nothing. But Z-Ben says the type of mandates CIC will seek remain unchanged: equities, emerging markets, private equity and real estate.

The $75 billion SSF mandate programme will remain more reliable, as it is less affected by FX reserves or China's trade situation. Its move into domestic infrastructure investing looks set to continue, and it is expected to seek high-return alternative investments abroad. But it is a naturally conservative, pragmatic and cautious institution; its pace will be steady but gradual, and may slow in the current environment.

Lastly, the $1.9 trillion State Administration of Foreign Exchange (Safe) was not included in Z-Ben's analysis of state investment agencies. But with its gross over-funding, it acts like one, needing to diversify into return-generating investments. Safe has been observed getting burned in 2008 by market turmoil in asset classes unusual for an agency linked to the central bank.

Although this has led many fund managers to assume Safe will become a growing source of business, Z-Ben disagrees, noting that CIC was created specifically to manage such overflowing reserve levels in non-traditional areas -- with a tailored investment design, manned by experienced investment professionals. Moreover, the government has grown alarmed at the size of Safe's reserves and will take measure to reduce these. Z-Ben predicts Safe's experiments with investing for higher returns are likely to diminish, not increase, over time.