Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
The NSSF, ChinaÆs largest pension fund, invites interested managers to submit proposals for a maximum of two of the mandates by June 18. The mandates up for grabs are funds that will be benchmarked against the MSCI China, MSCI All Country Asia Pacific ex-Japan, MSCI Emerging Markets, MSCI Europe, and MSCI World indices. According to current regulation, the NSSF is allowed to invest 20% of its total assets in overseas markets. At the end of 2007, its assets under management stood at Rmb516.1 billion ($74.5 billion).
The NSSF has set no specific performance objectives for the mandates and active managers will be given a free hand in portfolio management.
The managers should meet the following NSSF requirements: minimum six years of operation; more than $5 billion in assets under management; full licenses in home domiciles; a clean history with the local regulator over past three years; healthy management; and risk-monitoring systems.
The number of acceptable domiciles totals 39. These are Hong Kong, the US, Singapore, Australia, UK, Japan, Malaysia, Brazil, Ukraine, France, Luxembourg, Germany, Italy, Egypt, Korea, Romania, South Africa, Netherlands, Belgium, Canada, Switzerland, Indonesia, New Zealand, Portugal, Nigeria, Vietnam, India, Argentina, Jordan, Norway, Turkey, United Arab Emirates, Thailand, Liechtenstein and Mongolia.
Set up in 2000, the NSSF is a strategic reserve fund designed to meet the retirement needs of ChinaÆs aging population. It is currently funded by the central government from several sources including proceeds from the sale of shares in state-owned enterprises, lottery sales, investment returns from current deposits, as well as stock and fixed-income holdings.
An industry source says Northern Trust and Watson Wyatt will likely be the fundÆs custodian and investment consultant, respectively.
With an investment horizon of 15 to 20 years to match its liabilities, the NSSF is a long-term investor. Approved investments include bank deposits, sovereign bonds, debt issued by international monetary organizations, corporates and foreign debt issued by the Chinese government, commercial papers, money market papers, stocks, funds, depository receipts, futures, options and other permissible tools by ChinaÆs Ministry of Finance.
The Ministry of Finance recently allowed the NSSF to allocate up to 10% of its AUM to private equity funds. The NSSF expects its assets under management to exceed Rmb1 trillion ($144.3 billion) by 2010. The fundÆs yearly annualised return over the past five years has ranged from 10.7%, 8.11% higher than the 2.59% inflation over the same period.
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