China's NSSF takes more active social role
The National Council for Social Security Fund (NSSF) is assuming a broader role in China’s overall development as well as helping drive the growth of the country’s financial sector, according to senior industry figures. The NSSF is gradually making use of its 25% allocation to private equity projects which meet developmental criteria, and recently paid $1.5 billion for a 2.19% stake as a “strategic investor” in China Development Bank. It has also extended RMB 3 billion of funding to social housing projects involving the construction of 800,000 units in Nanjing.
This expansion suggests the fund is ready to move beyond its original mandate as a “strategic reserve” to becoming a more proactive player in domestic social and welfare plans. Providing welfare funding is only one aspect of the NSSF’s growing role, according to William Kwok, Head of QFii Department at Ping An Securities. “It may be too early to tell if NSSF spending directly matches the sectors outlined in the 12th five year plan, but there is certainly some overlap,” Kwok commented.
“We have recently observed a strong correlation in the investments made by QFII and the NSSF. Our investment tracker shows than in the first quarter, the machinery and chemical sectors attracted the most investment from both QFII and the NSSF,” Kwok told IPA.
“This would suggest investment is flowing to the seven “strategic sectors” outlined in the latest five year plan.” The government has prioritised spending on environmental issues, IT, bio-chemicals, hi-tech, new energy, new resources and new energy automobiles in the period 2011-2015. Without doubt, along with QFII, the NSSF is a pioneer in Chinese investment markets. It is extremely well managed and often leads the field for new trends and products. Generally, but not always, private equity and other funds follow this lead, and we can probably say there is a correlation,” Kwok added.
Min Tha Gyaw at Z-Ben Advisors picks up on this line of thinking. “The NSSF is seeding PE funding. But it is also doing a lot of due diligence work, so we can see it’s not only creating demand and interest in the asset classes, but also contributing to developing the industry’s infrastructure in China,” he said. “PE is a relatively young asset class in China, but the involvement of a big investor such as the NSSF is undoubtedly beneficial to industry development here.”
Min says the NSSF has been seeking volatility and, by extension, returns more actively, and is moving in to a wider range of asset classes to accomplish this: “I don’t think the core objective of being a strategic reserve is necessarily changing, but the fund is definitely becoming more active in managing and diversifying its assets,” said Min. “It has increased its equity allowance and also expanded into the alternative investment space.”
The NSSF can play an important role in China’s plans to increase welfare funding in the course of the next five-year plan. “Clearly, not all returns are financial, some are social, and the NSSF is more actively seeking social returns as well. Affordable housing is a big theme in this, and the fund’s long-term view has allowed it to move into social housing funding, such as the recent investment in Nanjing,” added Min