Coal Pension Trustees (CPT), which manages the investments for Britain’s legacy coal industry retirement schemes, is about to select two fund houses to run its first dedicated onshore China equity portfolios.
“We have a very short shortlist of managers and are approaching our final choice,” said Mark Walker, chief investment officer of the £21 billion ($27 billion) pension fund*, during an interview with AsianInvestor.
He said this week that CPT would probably make its selections next month, but declined to give any names. It plans to invest between £100 million ($131.6 million) and £200 million in total and is deciding whether to go with commingled funds or separate accounts.
One of the China A-share portfolios will be fully actively managed, while the other will be at least partially active, added London-based Walker; the fund is considering whether to also employ a systematic strategy.
The new allocation will be funded from elsewhere in the schemes’ 30% allocation to listed equities, he said.
CPT already has a “decent” allocation to China, and Asia in general, Walker said, and it is shifting its emerging market focus a little more towards China through the onshore market.
The country accounts for 5% to 10% of the fund's 12% allocation to private equity, and committed to another China private equity manager recently, Walker said, declining to provide the date or identify the strategy.
Moreover, emerging markets (largely comprising Asia) make up around one-quarter of CPT’s 30% allocation to listed stocks. That is well above the 10% weighting to emerging market equities by free-float market capitalisation of index provider MSCI's global benchmark.
CPT also has some exposure to Asia through other investments, such as bonds and private debt, but it is minimal, noted Walker. All of its real estate assets are in the UK and the vast bulk of its illiquid credit holdings are in Europe and the US.
Ultimately, the fund’s overall allocation to Asia is likely to rise further, given the growing economic size and importance of the region. “The opportunity is more in Asia than elsewhere,” he added.
But is the prevailing US-China trade war a worry for Walker?
He admitted to concerns about the potentially big impact that punitive tariffs could have on global trade and thus economic growth and companies worldwide. But, like many other international investors, CPT looks to be taking the long-term view on China.
Net cross-border inflows into A-shares via the Stock Connect during January and February totalled Rmb121.2 billion ($18.1 billion), helping the CSI 300 index shoot up 28.5% this year as of March 5, after it fell 25% in 2018.
CPT's A-share move reflects rising interest generally among foreign investors in the mainland equity and bond markets, as Beijing steadily opens the gates wider to more capital. In addition, last week index provider MSCI said it would incrementally raise the weighting of A-shares in its emerging markets index to 3.3% from 0.72% this coming October.
CPT’s plan also reinforces the overall trend for international asset owners to increase their exposure to Asian markets. To that end, a growing number are establishing offices in the region, with Dutch pension Bouwinvest one recent example. Retirement funds from Canada and the US, such as the Teacher Retirement System of Texas and Toronto-based PSP Investments, are also lining up local branches.
* CPT runs money for two defined-benefit plans: the British Coal Staff Superannuation Scheme (£9.5 billion) and the Mineworkers Pension Scheme (£11.5 billion). When the coal industry was privatised in 1994, both schemes were closed to new members and all contributions ceased.
For more details on how CPT manages its assets, look out for an extended interview with Mark Walker in the upcoming issue of AsianInvestor magazine.