China has introduced proposed regulations aimed at potentially widening the investment range of its National Social Security Fund (NSSF), a strategy that may inject additional liquidity into the market.
The Ministry of Finance, in conjunction with the Ministry of Human Resources and Social Security, issued the ‘National Social Security Fund Domestic Investment Management Measures (hereinafter referred to as ‘Management Measures’) on December 6.
According to the ‘Management Measures’, the investment scope of the NSSF’s domestic investments will be adjusted and optimized, and the upper limits of management fees and custody fees will be moderately reduced.
Once implemented, the new rule is expected to lead to a surge of liquidity in the scale of hundreds of billions of yuan of active funds to the markets.
An ‘Interim Measures’ announced in 2001 stipulated that for investments of monetary assets allocated to the NSSF, the proportion of investment in securities investment funds and stock investments, calculated by cost, must not exceed 40%.
With this new adjustment, the upper limit for investment in stock-type assets of the social security fund is relaxed to 40%, and the upper limit for investment in equity-type assets is relaxed to 30%. This enhances the investment flexibility of the NSSF and could be beneficial for the sustained support of the development of the capital market.
The investment scope is expanded so that the direct investment scope includes bank deposits, interbank deposit receipts, direct equity investments that meet the criteria, industry funds, equity investment funds (including venture capital funds), preferred stocks, approved stock index investments, and exchange-traded open-ended index funds.
Regarding management fees, the ‘Management Measures’ also propose a moderate reduction in the upper limits of management fees and custody fees.
Among them, the annual management fee rate for stock-type products shall not exceed 0.8%, the annual management fee rate for bond-type products shall not exceed 0.3%; the annual management fee rate for monetary cash-type products shall not exceed 0.1%; the annual management fee rate for equity investment funds shall not exceed 1.5%; and the annual custody fee rate extracted by the custodian shall not exceed 0.05%.
Established in August 2000, the National Social Security Fund (NSSF) is a national reserve fund for social security, composed of allocations from the central government budget, transfers of state-owned capital, fund investment returns, and other sources of funding approved by the State Council.
It is specifically used to supplement and adjust social security expenditures such as pensions during peak periods of population aging and is managed and operated by the National Council for Social Security Fund.
Since 2004, the NSSF began to experiment with equity investment funds, initially investing 15 million yuan in the Zhongbi Fund under the Haifu Industry Fund. Subsequently, the NSSF continued to deepen its involvement in the field of equity investments.
In 2006, the NSSF invested 1 billion yuan in the country’s first industry fund, Bohai Fund (state-owned capital). In 2008, as the first domestic institutional investor capable of independently investing in PE, it committed to invest 2 billion yuan each in Dinghui Investment and Hongyi Investment, marking an increase in the NSSF’s investment in private equity funds.
In 2010, VC stage equity investment institutions first appeared in the NSSF’s investment list, including Junlian Capital and IDG Capital.
In recent years, the NSSF has further increased its investment efforts. The ‘Industrial Investment Guidelines of the National Council for Social Security Fund’ issued last September mentioned increasing direct equity investments and expanding the scale of market-oriented equity fund investments, which was good news for VC/PE.
Notably, in May this year, the NSSF independently established the ‘NSSF Zhongguancun Independent Innovation Special Fund’ with an initial scale of 50 billion yuan, mainly investing in early and growth-stage science and technology enterprises in Zhongguancun, focusing on supporting these enterprises in tackling key core technologies and transforming scientific and technological achievements. The fund has a term of over 10 years and is managed by Junlian Capital.
Subsequently, the second fund solely funded by the NSSF as a single LP — the NSSF Yangtze River Delta Science and Innovation Investment Fund — officially landed in Shanghai, with a total scale of 51 billion yuan, managed by IDG Capital.
It is reported that the fund will focus on investments in key areas such as integrated circuits, biomedicine, artificial intelligence, electronic information, life and health, new energy vehicles, high-end equipment, advanced materials, the Internet of Things, big data, and intelligent manufacturing.