New China pension fund mandates tipped to total $322bn

Chinese asset managers are tipped for 20 new mandates under the national public pension fund reform which is set to be announced soon, while 30% of the investments are expected to be in equity assets.
New China pension fund mandates tipped to total $322bn

The Chinese government is expected to hand out a total of Rmb2 trillion ($322 billion) in mandates from its national public pension fund (PPF) pool.

AsianInvestor understands that seven cities and provinces are likely to participate in the new investment scheme.  

China’s PPF supervisor, the Ministry of Human Resources and Social Security (MoHRSS), is likely to allow the Rmb2 trillion to be invested in financial market investments, including equities

This represents 56% of the total Rmb3.56 trillion in the country’s urban and rural PPF pool, according to Wang Hui, an analyst at China International Capital Corporation (CICC). Local governments will retain the remainder of the PPF funds in cash, to fund short-term distributions.

Wang said there were two possible models for the long-awaited PPF reform, which aims to expand its investment scope in order to boost returns.

The first and most likely model will be to outsource mandates to the National Council for Social Security Fund (NCSSF), which was set up in 2000 to provide professional management of China’s social security funds.

Provinces like Jiangsu, Zhejiang, Sichuan, Liaoning and Shanxi, which own a higher accumulated amount of PPF, are likely to hand out mandates first, said Wong, as are cities like Shanghai and Beijing, which also have PPF of more than Rmb100 billion.

They are likely to follow Guangdong and Shandong’s model, which originated in 2012. Guangdong’s mandate, managed by NCSSF, has generated an average annual return of 5.5% over the past two years.

The second model is to set up a new centralised institution to manage the whole PPF pool from different provinces, thus creating competition with the NCSSF. Wang said such a model would require a longer implementation time because the government will need to set up a whole new investment institution.

Earlier this year, during a meeting of the National People’s Congress in Beijing, a MoHRSS officer outlined the reform and issued a proposal paper, with comments collated in late June.

Li Zhong, an MoHRSS spokesperson, said last Friday that the government received more than 1,000 comments on the reform proposal, with 61% of respondents agreeing with the idea of PPF funds invested in equities, while 31% were concerned about risks in the equity market.

The government plans to allow PPFs to invest up to 30% of assets in domestic equities, equity funds, mixed asset funds and equity-type pension products.

Although the government has not yet unveiled the details of investment scope and eligible managers under the reform, it is understood that domestic asset managers with experience of NSSF mandates and enterprise annuity schemes will be the immediate beneficiaries.

Zheng Bingwen, director at the Centre for International Social Security Studies at the Chinese Academy of Social Sciences, expects the PPF mandates will have as many as 20 external managers. But he thinks that NCSSF and external managers will need to be given strict instructions on investment and risk control because the PPF funds will need to be managed more conservatively than the NSSF, Zheng added. 

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