A: Yes, the NSSF is able to hire Chinese returnees who have worked overseas for decades.
But still, I remember a few years after it was established, it sent out a request for proposals, all in Chinese, to the international fund management community on the day before Christmas.
But the document spelled out everything it requested, including the tracking error. At that time, nobody knew that the NSSF knew what a tracking error was.
But they did end up awarding eight international investment managers for different international equity mandates. They went for the big names, understandably.
Q: It’s pretty impossible for any small alternative investment manager to get in the door with NSSF or China Investment Corp (CIC)?
A: Yes, because these are monster funds. Their minimum investment will be perhaps hundreds of millions U.S. dollars.
But the Chinese funds also bargain hard for fees. Sometimes, what they do is to put up the minimum amount into a main fund of a particular general partner. Then they become a co-investor on deals without having to pay for fees.
Q: Who has done this? The CIC?
Q: How are provincial pensions managing their investments now?
A: For the provincial pensions, the 20% contribution paid by the employer is pay-as-you-go. There is no time to invest it as the money paid this month will be gone next month.
The 8% contribution made by the employee is funded and can only be in government bonds or cash deposits. But hopefully in 2016, the provinces will be allowed to put a small percentage, 3% or 5%, into domestic equities.
My recommendation has always been that the provinces should not be allowed to buy or sell any equity. They should put 5% or 10% into exchange trade funds (ETFs).
Q: Do you think the provincial government officials will accept this idea, one that offers no potential opportunities for them to enrich themselves?
A: Well, the central government needs to educate and draw the line.
The other thing happening is that four years ago, Guangdong province, one with the biggest provincial pension assets, put RMB100 billion to NSSF to be managed. Shandong province was persuaded to do the same thing. There are another ten or a dozen provinces lining up.
Q: What will happen eventually?
A: It will be a gigantic monster if all provinces put their money to NSSF to manage. There has been some talk about setting up NSSF 2. There might be NSSF 3 or NSSF 4. This way, there is competition among these funds. They can’t be all doing the same thing.
About Stuart Leckie:
Stuart Leckie is chairman of Stirling Finance, a research and consulting firm focused on China’s pension and asset management industry. Leckie was previously chairman of Towers Watson in Asia-Pacific, and chairman of Fidelity Investments, Asia-Pacific. He has advised the Chinese government on the country’s pensions reforms.