China's social welfare fund is busy seeking partnership accords with
investment benchmarks and overseas partners to smooth its pending trade in
foreign securities as it tries to boost returns amid an estimated pension
shortfall.
China's National Council of Social Security Fund, the pension fund's manager,
signed deals last month with Standard & Poor's and Xinhua FTSE to use their
indexes as benchmarks for its US and Hong Kong equity portfolios.
The agreements, which are expected to be followed by a slew of partnership
deals with global asset managers, were seen by analysts as a signal that
authorities were ready to launch overseas investments but might still prefer to
be cautious as these are initial steps.
"It is anticipated that the S&P 500 will be used by SSF as the tracking
index for a passive index fund," the S&P said in a release, noting the gauge
covers nearly 80 percent of US equities, making it a proxy of the broader
market.
China's national pension fund started in April a program to seek overseas
strategic partners, including custodians and fund managers, after receiving
approval in March from the State Council, or China's Cabinet, to invest in
overseas capital industries.
The fund, which manages 212 billion yuan (US$26.5 billion) in assets, is
allowed to allocate up to 20 percent of its total assets overseas, with
investment channels covering bank deposits, government and corporate bonds,
stocks, mutual funds and financial derivatives.
It currently invests in domestic bank deposits, yuan-denominated securities,
bonds, trusts and infrastructure stocks.
"There has been an acceleration in moves this year to help the fund out and
you will likely see more deals done with overseas financial companies this
month," said Wu Zhiguo, a Guohai Securities Co analyst.
"But any trial overseas investments will only be small scale and won't be
into risky products."
Early this year, the welfare fund was allowed to buy into 169 large
enterprises directly owned by the central government and has invested 10 billion
yuan in the country's No. 2 lender, Bank of China, which raised US$9.7 billion
in its initial public offering in Hong Kong in May.
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