Not too much attention has been paid to the National Social Security Fund (NSSF), especially when compared to the China Investment Corporation. The reason for this is simple: the fund was only permitted to invest 7 percent of its total assets in foreign markets. However, this is apparently changing, as the fund will increase its international portfolio to 20%. By allowing more investment overseas, the government is hoping to ease pressure on the Yuan.
It also makes sense from a portfolio management perspective: according to Zhang Haochuan of Z-Ben Advisors:
“NSSF’s investment now is concentrated in the domestic market…But China’s capital market is only about 10 percent of the global market, so investing up to 20 percent of assets in places like the U.S. and Europe is not too much.”
The fund currently has about $100 billion in assets and plans to have around $150 billion by October of next year. So, the NSSF will soon have a foreign portfolio in the $20-30 billion range, which is nothing to sneeze at! Moreover, the fund will be expanding its alternative allocations, which means this announcement should have implications for lots of different types of asset managers.
At the very least, I imagine we’re going to start hearing a lot more about the NSSF…
NSSF is not an SWF, it is a true pension fund. An SWF is something which is (a) not a pension fund and (b) not a central bank or specialist manager of liquid state FX reserves.
It shows again that Chinese institutions can adopt any purpose that the state wants (in this case possibly capital exports to hide growing FX surpluses (although the trade account does not point to great urgency and the US is hardly vociferous about the USD/CNY rate) or that come up in struggles between political groups.
Not so fast, Rien. How is the NSSF different from Ireland’s NPRF, Chile’s PRF, or New Zealand’s Superannuation Fund? All were a part of the International Working Group of SWFs.
The question about China’s NSSF is as follows: does it have explicit liabilities to pensioners (who own quantifiable property rights). If not, I’d call it a SWF…
Thanks Asby,
Not surprised by your response. Still, NSSF relies heavily on premium contributions, and distributes benefits to urban residents to replace benefits once provided by SOEs. I think it comes closer to a western state pension fund than the NZ and Irish funds (which are primarily for the gvt to “save” for when the retirement surge of the baby boomers starts to stress the pay as you go systems and do not collect premiums). It has a very difficult investment environment though and clearly, it does not collect enough revenue and does not earn enough from its investments to meet future challenges. The domestic market is characterized by an abundance of liquidity and a very volatile stock market. In addition, just imagine the difficulties of an investment manager with a domestic mandate operating for a state fund in China, where most stocks are controlled by the state itself. Like CIC, it is in the first place an instrument of the state (and receives gifts). And like CIC it is multifactional (reps from MoF, PBC, etc). All in all, I am for a much more restrictive definition…
Happy holidays!
Thanks for the clarification, Rien. Very much appreciated. Enjoy the Holidays.
Just a clarification: NCSSF has never paid any money out. It has zero current liabilities and, even when the Jilin and Heilongjian regional plans needed cash, fiscal policy was used to remedy the cashflow problem rather than tapping NCSSF’s accounts. Do what you will in using that data to fit NCSSF into a taxonomy of SWFs…
Never paid any money out? Perhaps this is a Canada Pension Plan Investment Board (CPPIB) type situation.