China Close to Investing Pension Fund Overseas – Business Essay
Beijing has asked foreign institutions to apply to manage its holdings overseas, bringing closer formal approval for billions of dollars of pension funds to be invested in foreign stocks and bonds after nearly six years of debate on the issue in China.
The National Social Security Fund, established in 2000 by the central government as a kind of pension fund of last resort, said in a notice on its website that foreign managers could apply for mandates to invest its money by the end of June.
The fund had total assets of US$26.5bn by the end of 2005, with only a small proportion, US$1.57bn, held overseas.
Much of the NSSF’s assets have been raised through a government policy which directs state-owned enterprises listing overseas to set aside 10 per cent of the proceeds to go into the fund’s coffers.
Although the NSSF’s funds overseas are relatively small at the moment, they are expected to grow gradually in coming years to become a much-sought mandate for investment managers.
The NSSF is also blazing a trail for Chinese institutions and individuals to invest their holdings and savings overseas, a detailed plan for which is now being studied in Beijing.
The fund has laid out a series of rules for investing its money offshore, stipulating that any approved managers must have had at least US$5bn under management for the past year, a relatively small amount, and have been operational for six years.
For the first time, the rules posted on the NSSF’s website also lay out in detail the rates of return that the fund expects its managers to achieve through its investments in both stocks and bonds.
“There is going to be a rush among qualified institutions to apply, and they only have a relatively small, six-week window,” said Peter Alexander, of Z-Ben Advisers, a Shanghai-based consultancy.
Beijing has been in a bind for years about how to manage the fund’s money, most of which has been left languishing on low-yielding bank accounts in China.
The likelihood that money invested overseas would deliver higher returns has been balanced against worries about supervising such investments and pressure from the local stock exchange to put the money into local equities.
In line with China’s style of managing the introduction of reforms, the government has quietly allowed the fund in recent years to leave hundreds of millions of dollars raised in Chinese overseas listings offshore, instead of repatriating the cash to China.
“We would expect that they have a massive amount of money in cash,” said Mr Alexander.
Earlier this year, the fund established a trading account in Hong Kong, allowing it to keep its assets in the shares of listing Chinese companies and benefit from any rise in their price.
Shares in Hunan Non-Ferrous Metals, for example, rose 82 per cent on their debut in March in Hong Kong, to the great benefit of the fund.
By contrast, the NSSF had been frustrated by its involvement in the US$9.2bn Initial Public Offering of China Construction Bank last year, which left it with about US$900m in cash but no ability to benefit from the lender’s soaring stock price thereafter.