Seven foreign asset managers in existing joint ventures with Chinese firms are positioned to share in the management of an initial allocation of what is expected to be around CNY400bn (€55bn) of pension money from Chinese provinces.
The allocation is expected to come through China’s National Council for Social Security Fund (NCSSF), set up in 2000 to manage pension savings from Chinese provinces.
The NCSSF oversees CNY1.5trn in social security funds.
On Monday this week, the NCSSF granted 21 Chinese fund managers mandates to handle domestic equity investment.
Among the first batch of firms selected are the largest Chinese financial services companies – China Life Pension Insurance Company (CLPC), Ping An Insurance and CITIC Securities – along with a handful based in Hong Kong, including Harvest Asset Management and ICBC Credit Suisse.
Brittany Payne, an analyst with Shanghai-based asset management consultancy Z-Ben Advisors, told IPE: “Our estimate is that the first tranche (of allocation) will be round CNY400bn – and that amount could be disbursed next year. We believe there will be top-ups in coming years, and that these will be significant amounts.”
When approached by IPE, a spokesperson for CLPC described the selection of investment managers for domestic securities investment as “a significant milestone” in market reform of the Chinese pension system.
The spokesperson said: “CLPC will consolidate its own resources and leverage its advantages to contribute to the safety, stability and long-term growth of the national pension savings fund.”
Sydney-based AMP acquired a 20% holding in CLPC in October 2014 for AUD240m (€168.8m).
AMP also has a relationship with China Life going back a decade.
In 2013, the partners formed China Life AMP Asset Management, in which AMP Capital has a 15% stake.
Apart from CLPC, Payne said all the foreign joint ventures benefiting from the mandates were with Chinese fund management companies.
Deutsche Asset Management is the joint venture partner of Harvest Fund Management Company, based in Hong Kong, and ICBC Credit Suisse Asset Management Company is a joint venture between ICBC and Credit Suisse.
Others foreign firms to receive mandates include Bank of Montreal through its joint venture with Fullgoal Funds Management; BNP Paribas with HFT Investment Co; Eurizon Capital with the Shenzhen-based Penghua Fund Management; and Power Corporation of Canada with ChinaAMC.
According to the Chinese Ministry of Human Resources and Social Securities, as of the end of 2015, the total capital of China’s provincial pension funds had reached CNY4trn – up by 12% from the previous year.
The NCSSF move this week comes a decade after discussions first began about the need to use professional managers for provincial pension savings.
It is seen as a significant breakthrough in moving towards a market-orientated, professionall
China’s State Council issued a regulation in August last year that allowed provincial governments to transfer part of their pension funds to the NCSSF.
Under this regulation, 30% of total funds could be allocated to domestic equities, shifting away from the then-mandatory requirement to invest only in government bonds and bank deposits.
Sources said China’s pension industry comes under three pillars.
Pillar One covers the compulsory basic aged pension scheme; Pillar Two covers corporate schemes in the enterprise annuity sector and occupational pension sector for the civil service; and Pillar Three is for individual voluntary savings, including wealth management and insurance products.
Pillar Two and Pillar Three funds are already professionally managed by institutional investment managers such as CLPC, whose combined assets under management for enterprise annuity business is around CNY400bn.
Sources told IPE the mandates covered by this week’s NCSSF announcement relate to Pillar One.
Funds under Pillar One were entirely managed by provincial governments until 2012, when a pilot programme giving some flexibility was launched, involving the Guangdong provincial government.
This programme enabled Guangdong Province to allocate CNY100bn from its basic pension fund to the NCSSF.
Shandong provincial government followed with CNY50bn. Then, earlier this year, Shandong invested a further CNY100bn with the NCSSF, according to sources.
In its annual report, NCSSF noted that total returns by the end of 2015 to Guangdong amounted to CNY31.43bn, and to Shandong, CNY3.7bn.
One source told IPE: “Going forward, it is expected that more provincial governments will entrust the NCSSF in the management of their basic pension funds.”