We can make some observations here:
- When it comes to overseas allocation, SSF seems to favour active management a lot more than passive, although it did use Vanguard in 2015 for passive strategy.
- SSF has not been afraid of trying new asset classes and new markets. Emerging market, natural resources and real estate have all been included in the portfolio.
- While mainly allocating to international names, SSF recently would also show support to Chinese leading managers’ international arms (Dacheng, China Universal).
For those managers who are interested in trying, SSF does have some criteria in overseas manager screening (6 years’ track record, minimum AUM of USD5 billion, etc), but not really too high a threshold. More important for an interested manager is to demonstrate its unique capabilities in a certain area.
Aside from SSF, there has been quite a lot of discussion in the last couple of years about the need to enable other pension sectors to mandate overseas managers. Part of the provincial-level Public Pension Funds (PPFs) has been entrusted to NCSSF and given NCSSF’s overseas investment experience, it won’t be a surprise that these entrusted PPFs would be the next to do global asset allocation. The enterprise annuities, with over 14 years of professional operation in the domestic market already, would also have a good chance to allocate some asset overseas soon. PPFs managed at the provincial level and the occupational annuities (newly introduced pillar 2 component) would need a bit longer time.
Chinese pension’s domestic market asset management
Majority of the Chinese pension assets are invested in the Chinese domestic market and hence many global asset management houses are extremely interested in exploring onshore pension investment businesses.
For an international name, if you are regulated by China Securities Regulatory Committee (CSRC) as a mutual fund manager in China, you can apply to get on the domestic market manager list of SSF, PPFs, enterprise annuities and occupational annuities, all of them. You can also participate in the pillar 3 pension sector by offering pension products (target-date funds or target-risk funds). Many global asset management names have mutual fund JVs in China so they can already participate. However, until recently international managers could only have a minority shareholding in these JVs, which means quite limited control. The new policy is that the overseas shareholding in mutual fund manager JVs can now increase to 51% and in 3 years time can further increase to 100%. Some of the global managers are taking this route to secure a fully controlled mutual fund licence in China gradually, eyeing the pension and other long-term clients.
Many other global managers have chosen another route: establish a Wholly-owned Foreign Enterprise (WOFE) and get the Private Fund Manager (PFM) status by registering with the Asset Management Association of China (AMAC). PFM enables a manager to raise fund from qualified investors (but not from pensions so far), similar to the European AIFM. However, just as the proverb says, “all roads lead to Rome”, according to the rule, a PFM manager can apply to be a CSRC regulated mutual fund manager after 3 years’ of normal operation. The benefit of this route is that you have a wholly-controlled subsidiary from day one to deploy your management and investment strategy without any disturbance, while still have the option to “upgrade” to a full-service mutual fund manager after 3 years’ local experience accumulation.
I know there are too many terms and acronyms in this piece, which makes the reading not that easy. Why not come to join the “China Pension Reform and Long-Term Investment” seminar organized by ATC Initiative in collaboration with KPMG in London on 5th April and listen to the experts from Chinese and European pension sector face to face?