NSSF expects AUM surge, overseas mandates tipped

The ex-chairman of China’s NSSF pension fund has forecast it will more than quadruple assets under management by 2020 amid market expectations it is set to outsource more to foreign firms.

Speaking at the annual Boao Forum for Asia conference in Hainan this weekend, Dai Xianglong suggested that the National Social Security Fund (NSSF) could see its AUM surge to Rmb5 trillion ($806 billion) over the next seven years, from Rmb1.1 trillion at present.

He reasoned that as the strategic reserve for China’s pension system, NSSF would continue to receive state-owned asset injections under the approval of the finance ministry.

Shanghai-based consultancy Z-Ben Advisors is predicting that NSSF will now look to issue more mandates to foreign fund houses, creating opportunities both for first-time applicants and for fund firms that have tried to win mandates but failed in the past.

As at the end of 2011, 42% of NSSF’s assets were already managed by external managers and 58% by its in-house team. Its figures for 2012 have yet to be released.

“As NCSSF strives to manage a greater amount of capital and achieve higher returns, we suspect it will outsource a larger amount of assets to foreign managers for offshore allocation,” Z-Ben notes.

Dai stepped down as NSSF chairman last month but remains party secretary. He was replaced as chairman by former finance minster Xie Xurun.

But Z-Ben does not expect any major changes in NCSSF’s risk appetite following the changeover, seeing the fund as likely to maintain its offshore equity exposure at a base of 10% of AUM over next five years. It is more likely to increase allocation to riskier assets gradually across industries as it builds its capital base, Z-Ben suggests, meaning the opportunities for foreign fund houses will be derived from the AUM growth.

Last year NSSF saw its AUM surge 27.5% year-on-year to Rmb1.1 trillion. It recorded a 7% return on investment for the year, or Rmb64.5 billion – its best annual performance in three years.

The fund has been seeking yield aggressively. As at the end of 2011, equities accounted for 32% of AUM against a long-term historical average of 20%.

It has also just allocated Rmb396 million from two portfolios to the new CSI300 ETF launched by Southern Asset Management. Fundraising was completed earlier this year and the ETF is due to start trading this week on April 11. 

Meanwhile, the fund’s segregated mandates  – amounting to Rmb170 billion – provided an average 9% return in 2012. They include a mandate for Guangdong province allowing for equity exposure up to 40% and investment into overseas markets and alternative assets. 

However, Dai did deny reports that NSSF could look to turn itself into an investments firm, saying that if the AUM it runs for others became bigger than its own asset base, it would be run more like a state trust company.