Despite Hype, Pension Management Outsourcing Not Popular

While talk of fiduciary management has been on the rise, a new survey by consultant bfinance shows that pension plans are unlikely to use plan outsourcing anytime soon.

(September 17, 2009) – Despite the hype, a new survey suggests that fund outsourcing is far from the minds of most fund managers.

According to an August/September survey by manager search consultancy bfinance that polled 88 managers in 10 countries, 91% of fund managers have no intention of altering their governance structure. Even more surprisingly, given the hype surrounding fiduciary management, not one respondent claimed that they plan to switch to a fiduciary provider. Nine percent said that they “might” do so. These numbers show a more-than-healthy skepticism toward placing the risk of pension funding with a third party.

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Instead, the survey finds, pension funds are more likely to turn to consultants. Of the respondents, 24% said that they plan on asking consultants for strategic advice; 18% stated that they would need help with manager selection. Other uses for consultants were monitoring and reporting (12%), benchmark selection (11%), risk budgeting (7%), portfolio construction (7%), and custody services (5%).

The survey respondents represent corporate pension schemes (34%), public pension schemes (30%), and endowments (10%); they ranged in size from $200 million to nearly $30 billion in assets.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

To Entice Foreign Capital, China Relaxes Regulations

Although still miniscule in nature, the Chinese Qualified Foreign Investor (QFII) program will—if proposed regulation passes—raise limits, lower minimums, and reduce lockups for foreign institutions, a sign of encouragement for foreigners wishing to pour money into the country.

(September 9, 2009) – In a move signaling an increased willingness to let foreign institutional investors play in domestic markets, China has relaxed quotas and lowered lockup times for foreign investors.

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Draft regulations released last Friday include a provision that would raise the maximum individual contribution for QFIIs from $800 million to $1 billion, according to Reuters. Also included in the proposal would be a lowering of the minimum investment from $50 million to $20 million, and a relaxation of lockup periods from one year to three months. However, the overall limit of $30 billion placed on QFIIs still remains at $30 billion, a relatively small sum compared to the market capitalization of more than $3 trillion.

The QFII program, launched in 2002, allows designated foreign investors—including Yale University, Singapore sovereign wealth fund Temasek, the Bill and Melinda Gates Foundation, and numerous American banks—to purchase and sell shares in the Chinese public markets. As of February, a total of 79 foreign investors had been approved under the program.

The move comes after the Chinese stock market fell 22% in August; some pundits see this as a measure, at least symbolically, to both stabilize the domestic market and aid QFII investors.

“Most QFIIs are now brokers using funds they have raised to invest in China,” Wu Haijun of Power Pacific Corp of Canada—the QFII participant for Power Corporation of Canada—told Reuters. “Funding channels for those brokers are not always stable. Some may not be able to assume the role of stabilizer in case of market volatility. By lowering the minimum quota requirements and other steps, China apparently hopes to diversify QFII investors.”

To contact the <em>aiCIO</em> editor of this story: Application Administrator at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742