Northern Trust, the US-based custodian and wealth management firm, has been appointed by the World Bank's private sector arm, the International Finance Corporation, to advise the new National Council for Social Security Fund in Beijing on middle- and back-office systems.

This makes it the latest in a line of advisers helping the Social Security Fund, including Principal Global Investors, which is training Fund staff, and the Caisse de Depot et Placements du Quebec which, along with State Street Global Advisors, is consulting on establishing investment and asset allocation guidelines.

The National Council has been recently established as a centralized, fully-funded pensions fund of last resort intended to cover urban retirees should their provincial or municipal retirement schemes prove inadequate. Although the entity has a kitty of around $1 billion, its funding remains an open question, as the government backed away from a scheme to use proceeds from sales of state-owned shares in listed companies for paying pensions.

That of course is not an issue for Northern Trust, which has begun a project to consult the National Council on setting up a risk management system, including establishing performance measurement benchmarks, asset allocation monitoring and a method to do value at risk, all within the context of how things operate in China.

"What we're really doing is figuring out how to breach the gap between theory and the constraints of doing business in China, to come up with a preliminary working model," says Lawrence Au, senior vice president and Asia-Pacific general manager at Northern Trust in Singapore.

Right now the bank is reviewing the actual operations of the Fund. It had made its pitch for the business without knowing how the Fund actually works. Au hopes the project can be completed in nine months. Once the National Council starts picking external fund managers, which other market participants expect to happen next year, it will need to be able to monitor and process those investments.

Northern Trust also has a technical cooperation agreement with Bank of Communications in Shanghai but Au says that relationship played no part in this mandate. Northern Trust does have a longstanding relationship with the World Bank as its custodian, however. The firm decided not to charge a modest fee for its work as a goodwill gesture.

Foreign custodians are currently not allowed to operate in China. Under China's terms of joining the World Trade Organization, it must open to foreign commercial banks after seven years, but a specialist such as Northern Trust has little interest in taking a stake or making a JV with a full-fledged commercial bank. It must hope that in the future, commercial banks can spin off their trust or custody arms, or that China will allow foreign custodians to set up shop on the mainland. If either event comes to pass, Au hopes Northern Trust's good works now will position it for business opportunities in the future.