Vietnam Social Security, a $2.5 billion agency, intends to invest up to 10% of its assets overseas starting in 2006, says Nguyen Huy-Ban, Hanoi-based director-general. "We want to invest in international equities," he says, noting the organization has been discussing this request with the office of the prime minister, its governing body, for several years and that recently the authorities agreed to liberalize investment rules two years from now.

Although small by regional standards, VSS is very big in a local context. The Vietnam stock exchange in Ho Chi Minh City has a market cap of just over $10 million. Nearly all of VSS' assets are invested in government bonds, with a little exposure as well in the form of loans to the government-run Development Support Fund and deposits in state-owned commercial banks.

Although government bond yields are as high as 8%, the VSS faces domestic inflation of around 7%. Because its asset size is growing at a rapid clip - some 20% per annum - it is struggling to meet its targets. Moreover, VSS is anxious to diversify its asset base.

Nguyen says the VSS will be looking to hire external fund management companies when it goes abroad, as it lacks any in-house expertise in international investment. He may consider using an investment consultant, but for now he is relying on bilateral exchanges with other government pension funds in Southeast Asia for advice.

The VSS is a young organization, founded in 1995 when the government merged the social insurance units of the Ministry of Labour, Invalids & Social Affairs with that of the Vietnam General Confederation of Labour. The VSS implements social insurance and health insurance schemes, collects contributions from employers and workers and pays beneficiaries. The social security fund it manages is separate from the state budget but reports directly to the prime minister's office.

As of the end of 2003, the VSS was responsible for 16.1 million members in its health insurance schemes and 5.4 million members in its social insurance schemes. Employers contribute 17% of a worker's monthly salary (15% for social insurance, 2% for health insurance), while employees contribute 6% (5% for social insurance and 1% for health insurance). Both programmes are growing rapidly, with health insurance assets doubling in the past five years, while the social insurance component has tripled.