State Street is sub-advising China's National Security for Social Security Fund to implement what will be a national pensions investment system. State Street's role is to support the Caisse de Depot et Placements du Quebec, Canada's largest pension fund, which is consulting the National Council regarding asset management, including advising on implementation of asset allocation, fund manager selection and back-office operations.
Vincent Duhamel, State Street's Hong Kong-based CEO, says the firm's role will focus on giving CDPQ portfolio management and risk management expertise. State Street has been training Chinese nationals in Boston on these areas.
CDPQ is providing overall advice on how to structure and implement the National Council's investment management programme.
Duhamel, when asked about how State Street and CDPQ began working together, says, "Don't forget: I'm from Montreal. It's a small town. We've known each other for a long time."
Part of CDPQ's mandate is to advise the National Council on the selection of investment managers - obviously a prize that State Street would like to win. Duhamel says it is too early to determine what role, if any, State Street could play in that regard. "We are always interested in bidding for institutional clients but it is too early to know," he says. Initial mandates are expected to be solely to domestic asset managers, although many foreign players, both fund managers and insurance companies, are expected to pitch for business.
Duhamel also says while State Street Global Advisors is a heavyweight in the index management business, it is also an active manager at the firm's presence doesn't have a bearing on what kind of allocation strategy the National Council will adopt.
The National Council has been established as a nationwide provident fund to fill provinces' and municipalities' retirement benefit gaps. It is said to have an initial Rmb80 billion (about $1 billion) under management, sourced from state budget transfers. More assets will be gathered from privatizations and other methods, possibly including a lottery. The National Council's key staff members are currently being trained by Principal Insurance.
CDPQ is the civil service pension fund of the Quebec provincial government. It also has a consulting arm, which is now not only advising the National Council but also Korea's National Pension Corporation. CDPQ is said to have close ties to the Asian Development Bank, which in previous reports to the Chinese Ministry of Finance recommended China follow Canada's pension model most closely. Canada has a successful pension system based on American-style free markets infused with European socialism. CDPQ also has a direct equity business and an office in Hanoi that directs it in Southeast Asia.
The ADB has unofficially selected CDPQ the mandate to advise the National Council, as well as mandating Hewitt Associates to advise the Liaoning provincial government on its related pilot programme for a new pension system.