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Citi Transaction Services | Citi OpenInvestor
Regardless of the underlying reasons,
SAFE, a regulator overseen directly
by the People’s Bank of China, has
found itself sitting on one of the
largest hoards of foreign reserves in
the world. Yet, the real value of these
reserves has steadily declined as the
need to increase purchasing power
has increased. SAFE has therefore
taken it upon itself to add slightly
more aggressive exposure to the
foreign currency reserve holdings, as
an apparent stopgap effort between
U.S. Treasuries and duties that are
supposed to fall under CIC. On the
whole, SAFE has historically been a
conservative investor, with holdings
focused on fxed income. More
recently, however, SAFE has been
provided with an expanded role and
is now working to diversify foreign-
currency holdings much like CIC does,
providing global asset managers
with a new (and sizeable) business
opportunity.
For selection criteria, SAFE
unsurprisingly has preferred
managers with a track record of
highly stable investments and will
increasingly look to diversify its
assets away from targets that are
strongly correlated with its traditional
holdings (developed market debt).
Unfortunately for the fund, there
are few asset classes that ft this
description and offer risk-free returns,
presenting a signifcant opportunity
for asset managers that are able to
provide this type of exposure.
Exhibit 9: Growth of SAFE’s Foreign Reserves,
2000 – 2011 (USD bn)
SAFE’s foreign reserves have compounded at an average rate of 30% since 2000
Sources: SAFE, Z-Ben Advisors
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
National Council for Social
Security Fund
The National Council for Social
Security Fund (NCSSF) is the
supervising body for the National
Social Security Fund (NSSF), a fund
created to oversee assets that
will eventually be injected back
into China’s pension system. It is
a common refrain that China will
grow old before it grows rich, and
as a result of demographic shifts,
the country’s public pension system
will soon come under considerable
pressure. At present, coverage is
nowhere near universal, with only
a portion of the population being
covered. This means that if plans
for expansion of the system go
into effect, the need for additional
funding becomes all the more acute.
Foreseeing just such a problem, State
Council established NSSF and NCSSF
in 2000, with a mandate to develop
its investment expertise and realize
strong returns. Since then, the fund
has been relatively conservative, with
a signifcant portion of its assets put
into fxed income holdings.
One complicating issue is that the
national system’s pension assets
are actually held at the provincial
level, many of which are currently
running defcits. Until recently, how
these (mostly cash) assets could be
managed was unclear. Payouts will
soon surpass infows to the system,
straining the resources of even
regions that now boast surpluses.
Earlier this year, Guangdong
province’s pension scheme allocated
RMB100bn (USD15bn) in a mandate
to NCSSF. While this is likely a trial
scheme (Guangdong claims one of
the largest provincial surpluses), if
it is replicated it means that
NCSSF
may well become the dedicated
manager for surplus funds in the
nation’s pension system.
Up until
“For selection criteria, SAFE unsurprisingly has preferred
managers with a track record of highly stable investments
and will increasingly look to diversify its assets away from
targets that are strongly correlated with its traditional holdings
(developed market debt).”