The big picture: how China's NSSF is taking the lessons of a 2021 slump to invest long

China’s pension investment is becoming more sophisticated, say analysts, as managers pivot to long-term investments such as biotech and new energy.
The big picture: how China's NSSF is taking the lessons of a 2021 slump to invest long

China’s National Social Security Fund (NSSF) - dubbed the first pillar pension system - is allocating more assets to external fund managers while adding focus to long-term investment, including new energy manufacturing, biotechnology, and capital goods.

Analysts observed these trends after the country’s national pension fund reported a disappointing investment return of 4.27% in 2021, the worst among its global peers over the same period, according to its latest annual report.

In 2021, NSSF recorded an investment return of Rmb113.18 billion ($16.35 billion), less than one-third of the gain in 2020 when the pension fund scored 15.84%, or Rmb378.67 billion in investment return.

By the end of 2021, NSSF’s assets under management (AUM) were Rmb3.02 trillion ($436.3 billion), a 3.4% increase from the Rmb2.92 trillion in AUM in 2020.

By asset size, NSSF is the third largest pension fund in Asia after Japan’s Government Pension Investment Fund (GPIF) and Korea’s National Pension Service (NPS), and the seventh largest globally.

NSSF’s average annual return has been 8.3% since 2000, among the top performers globally.

However, the 4.27% return in 2021 is the worst among large pension funds globally. For example, NPS’s return by the end of 2021 was 10.77%.

Compared with the global equity market rally in most of 2021, the gain of Shanghai Composite Index was merely 4.8% over the same period.

According to NSSF's annual report published in August, most losses were seen in the fair value adjustment of trading securities, which usually includes stocks and bonds. The pension fund lost Rmb111.41 billion ($16.1 billion) in this sector – a large reverse from the Rmb174.1 billion gains in 2020.

It also recorded exchange losses of Rmb287 million in 2021, while the segment brought Rmb329 million gains in 2020.

Investment return in securities and stock dividends also narrowed in 2021, shrinking by Rmb8.32 billion and Rmb2.11 billion respectively.


Due to foreign investment restrictions, NSSF is a large domestic investor. As of end 2021, 90.98% of its assets were invested domestically, with only 9.02% invested offshore. Compared with 2020, its offshore investments shrank by 0.67%.

In 2021, NSSF cut direct investment to 33.82% from 34.72% in 2020, bringing outsourced assets to a record 66.18%.

Over the past years, the national pension fund has been allocating more assets to external managers. In 2014, it only outsourced 49.74% of assets.

Janet Li, Mercer

“During the course of working with local clients, one thing which we have found quite amazing is the fast learning of all the local fund management companies,” noted Janet Li, Asia wealth business leader at Mercer based on her observation of pension investment in China across national pension and enterprise annuity space.

“They've learned very fast, advanced very fast, including bringing some longer-term investment philosophies.

"They are trying to ensure that the portfolio management team is organised and taking a holistic view of the portfolio rather than individual views, and also structuring incentives so that they align with investors,” Li told AsianInvestor.

Every year, NSSF reviews fund manager performance for domestic investment based on excess returns over the past three years.

According to the disclosure on Aug 12, NSSF has 205 mandates managed by 187 fund managers from 18 investment firms for its domestic investment.

“I expect that going forward, more and more pension money, especially as they build up their size ... will be going to fund management companies located domestically,” Li said, referring to the general pension investors in China.

Major fund managers contacted by AsianInvestor declined to comment on client investment. NSSF couldn’t be reached for comments. 


While NSSF does not disclose a detailed breakdown of its asset allocation, the balance sheet of 2021 showed that trading securities accounted for 55% of the portfolio, rising from 48% in 2020.

Long-term equity investment, on the other hand, increased to 7.1% from 6.9% in 2020. The allocation to bank deposits decreased from 1.97% in 2020 to 1.79%.

Notably, NSSF invested Rmb95.4 million into derivatives in 2021. The asset class was not in the 2020 balance sheet.

As one of the largest institutional investors in China, NSSF’s asset allocation and investment strategies are closely watched by market participants.

“Over the years, we have seen China’s pension investors becoming more sophisticated by not just investing in direct stock holdings, but also into some funds which have slightly longer time duration. In the past, it was always about trading short-term positions,” Mercer’s Li noted.

Li Qiusuo, CICC

In the first half of 2022, NSSF’s shareholding increase was focused on upstream and midstream, as well as sectors like manufacturing and new energy, according to Li Qiusuo, managing director of market strategy at CICC Research.

Its largest holding increase was seen in capital goods, and automobiles and components sectors, with market value increasing Rmb4.2 billion and Rmb1.5 billion respectively, accounting for 33.6% and 11.9% of the total holding change, according to CICC data.

Market volatility since the beginning of 2022 has meant NSSF has added positions with long-term investment value at relatively low valuations, such as medicine and consumption, CICC's Li told AsianInvestor.

The market value of its investment in pharmaceutical, biotechnology and life sciences sectors increased by Rmb1.2 billion in the first half of 2022, CICC data showed.

Going forward, CICC’s Li believes more incremental long-term funds should be introduced into China’s financial market.

“The trend should be guiding more long-term funds into the market, increasing the proportion of equity investment of insurance, pension funds and other funds,” he said.

He also believes investments should focus on sectors with more growth potential in the real economy.

“According to the strategic development direction of the economy and based on the goal of long-term returns, we suggest institutional investors actively participate in meeting the financing needs of enterprises and help with their growth,” he added. 

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