The chairman of China’s National Council of Social Security Fund, Dai Xianglong, has publicly announced plans to increase private equity investment sharply in the next two or three years.
During a global private equity forum staged in Beijing at the weekend, it emerged that investments into unlisted private equity firms had contributed almost 70% of the fund’s total return last year, although the annual figures will not be released until this May.
Wang Zhongmin, NCSSF vice-chairman, revealed at the forum: “When the secondary market dropped massively last year, it is the returns from direct investment and private equity that contributed nearly 70% to the NSSF’s total yield last year.”
Dai said that at the end of December the NSSF had invested in 13 PE/venture capital funds with a total value of Rmb19.5 billion. It is understood it invested Rmb7 billion into five funds last year managed by firms including Citic Capital, GP Capital Industrial PE Fund and CDH Investments.
That is a marked increase on the two it invested into in 2008, 2009 and 2010 and one in 2004 and 2006.
The total value of the 13 funds is Rmb63 billion, in which the NSSF holds 31%. Dai discloses that these PE funds have invested in 124 target companies, among which 19 have tripled their market capitalisation through public listings and 13 others have applied for IPOs.
According to NSSF investment guidelines, 10% of the fund’s total AUM can be invested in unlisted firms. Given NSSF’s AUM of Rmb856.7 billion at the end of 2010 and its present investment of Rmb19.5 billion in unlisted firms, there’s room for a further Rmb65 billion in investment.
And Dai confirmed at the forum that the NSSF would be speeding up its private equity investment programme over the next two or three years. That said, he added that the fund would remain prudent in the PE space.
“The investment timeframe is about eight years,” he noted. “So we are cautious about PE investment, and we need to be selective with GPs. We cannot fully invest 10% [of AUM] within three to four years, but rather we will allocate continuously year by year.”
He also admitted that the NSSF was short in terms of internal human resources for PE investment. “We only have a department of one deputy chief and four staff, so a total of five people to deal with this,” he said, without elaborating on plans for additional hires.
At present there are 10 external managers running PE mandates for NSSF, including Haitong-Fortis PE Fund Management, Bohai Capital, Hony Capital, CDH Investments, Citic Capital, Legend Capital and GP Capital.
Only recently it emerged that the NCSSF had signed a partnership deal with software provider eFront to manage its alternative investments more efficiently, as reported by AsianInvestor.