NSSF new mandate details; pilots floating fee structure
20 Jul 2012
China's National Council for Social Security Fund has announced a new round of mandates, which included 12 foreign investment managers, and is trialling a performance-linked fee structure that industry participants argue will encourage pensions fund managers to go in search of alpha.
NSSF awarded a total of 21 mandates, divided into multi-asset, emerging market currency and debt products, commodities equities and global real estate. Among the foreign names, JPMorgan Chase & Co, Lombard Odier, Neuberger Berman and Schroders were given multi-asset mandates. Standish Investment Management and Stone Harbor Investment Partners were awarded management of emerging markets and debt products.
AGF Management Ltd., Investec Ltd., JP Morgan and RBC Global Asset Management were awarded natural resource responsibilities, while AEW Capital Management LP, AMP Capital and European Investors Inc. picked up real estate segments.
"We are honoured to have been awarded this significant mandate which recognises AGF's proven track record in managing resources portfolios," said Chris Boyle, Senior Vice-President, Institutional for AGF Investments. "Our award-winning Global Resources team is well known for generating consistent results and will use its disciplined investment process to build retirement savings for Chinese investors."
By end-2011, the NSSF managed assets RMB868bn ($136bn), 58% of which are self-invested and 42% of which are managed by external managers. However, NSSF has struggled with returns, last month announcing its 2011 performance was the worst since 2008. Despite this, management fees ballooned 25% to RMB1.02bn.
The introduction of a floating fee structure was welcomed by E-Fund management, itself a mandate holder. Nathan Lin, Managing Director at E Fund Management (HK) Co. "It makes more sense for the institutional mandates than retail funds, because in China, we also structure the fees in the form of a base fee plus a performance fee or profit sharing with some institutions. So it's not as unprecedented arrangement for institutions to China. Whatever NSSF does, receives a lot of attention. But it also makes sense for the clients because the clients pay a lower fee, rather share the alpha with the management, it makes sense for both parties."
Under the scheme, managers who return more than 8% will be able to negotiate a performance fee, while those who return less than 8% will get a flat 3% management fee.
"This will encourage managers, be it domestic or foreign, to provide excess returns, or alpha, beyond the benchmark. The floating rate is in line with what NSSF is trying to achieve," concludes E Fund's CIO for Fixed Income Ma Jun.
Author: Yong An