China’s Pension Looks to Boost Investment Abroad, Dai Says

(March 30, 2010) – China’s $114 billion national pension fund is looking to increase investment in private equity funds and unlisted equities abroad and more than double its total assets to $293 billion by 2015.

The lofty goal to achieve higher returns suggests China’s pension fund sees limited investment options at home, has confidence in the gradual recovery of the US economy, and faces pressure to provide for its rapidly aging population, which some expect to peak in size in the 2040s when one out of every three people will be older than 60.

National Council for Social Security Fund Chairman (NSSF) Dai Xianglong, who has run the Social Security Fund since 2008, said the fund will boost investment in US and European capital markets, despite his expectation that the yuan will strengthen in the long run, according to Reuters. Dai said the fund additionally sees potential for investment in India and other fast-growing economies. The NSSF currently invests 6.7% of its assets outside China, but it hopes to achieve a 20% allocation.

“We are selecting, and are in contact with some Hong Kong financial professionals. Of course, I hope we can do some deals,” Dai told reporters in Beijing on Monday, Reuters reported. China’s pension fund was set up in 2000 with government capital and dividends from listed state firms. Last year, with about 60% of the fund’s return from stock-market investments, its return on investment totaled 16.1%, while its average annual return over its nine-year history is 9.75%.

According to the Wall Street Journal, the NSSF has earned return of more than 250% over three to four years on investments in state-owned banks, such as Industrial & Commercial Bank of China Ltd. and Bank of Communications Co. Looking ahead, Dai, a former central bank governor, said the fund is eager to invest a total of 35 billion yuan in two additional state-owned banks: China Development Bank Corp. and Agricultural Bank of China Ltd.