15
China: The World’s Best Opportunity for Asset Managers?
| China’s Institutional Investors
now, it was unclear which entity would
manage existing assets. Some saw
the NCSSF as the natural candidate,
as it already holds a large amount of
assets and has a similar mandate —
achieve the strongest returns possible
while maintaining overall holdings for
eventual deployment into the pension
system. There was also the prospect
that an entirely new organization
would be created, allowing NCSSF to
focus on the long-term stability of
its assets, given the supplementary
nature of the fund. The move by the
Guangdong pension system is likely a
frst step in order to test feasibility.
Domestically, NSSF has been active
in awarding mandates, typically for
the portion of its portfolio dedicated
to higher-return targets (at present,
equities and a handful of alternative
investments). To access these, a frm
must have an onshore presence,
preferably an experienced asset
manager, and a track record in
running large mandates. Looking
ahead, one thing is certain:
the sheer
scale of the obligations facing
the pension system means that
signifcantly higher returns are an
absolute necessity, not a luxury.
Beijing has no doubt realized this
and, over the next several years,
a windfall is heading toward frms
positioned to capitalize on the shift.
NCSSF has also made forays
offshore, although nowhere near as
aggressively as CIC. The last RFP for
international mandates that NCSSF
issued was in 2011 and was arguably
the most fexible to have been issued
to date, allowing for a broader
range of targets than historically
permitted. These included offshore
fund products and even derivatives —
the institutional equivalent of a blank
check for product designers. Over
time, NCSSF’s preferences appear to
have broadly mimicked CIC’s, as the
fund is typically considered a model
for other major domestic institutional
investors. With infation having made
headlines several times over the past
year in China, the need to enhance
returns for one of the most important
pots of capital in the country becomes
all the more apparent. As a result, it
would not surprise us if NCSSF shifted
to become even more aggressive in
the near future.
Exhibit 10: NCSSF Portfolio Returns and AUM,
2001 – 2011 (RMB bn)
Caption: Since its establishment, NCSSF’s portfolio has only suffered one
negative annual return
Sources: NCSSF, Z-Ben Advisors
0
200
400
600
800
1,000
2001
1.7%
2.6%
3.6%
2.6%
4.2%
29%
43.2%
-6.8%
16.1%
4.2%
5.2%
80.5
125.7
132.5
171.1
211.8
282.8
569.2
562.4
776.6
856.7 869.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
2011
“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.”