Largest Investors Pursue China's Greater Open Door Policy

(May 16, 2012) — Some of the world’s largest investors are lining up to take advantage of China’s economic upward trajectory and new structure for foreign pension funds to invest in the country’s capital markets.

With quotas individually capped at $1 billion under the Qualified Foreign Institutional Investor (QFII) scheme, the China Securities Journal reported that the country may increase the maximum amount that a foreign financial institution can allocate. It did not say when or by how much the quota may be increased. The new mechanism for foreign pension funds to invest in China’s capital markets would be separate from the existing Qualified Foreign Institutional Investor program.

According to the newspaper, 37 QFIIs, including Norges Bank and Abu Dhabi Investment Authority, have applied to up their quotas by a combined $12.54 billion.

Last month, the China Securities Regulatory Commission announced that international fund managers would be permitted to invest a total of $80 billion in China’s onshore capital markets, up from the previous limit of $30 billion. The decision expanded the ability of QFIIs to invest in China’s stocks, bonds, and bank deposits. The regulator asserted that the decision to heighten the quota is meant to “promote opening of the domestic stock market, expand overseas investment channels for the yuan and to meet the needs of foreign investors on the domestic stock market”.

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The pressure on China to seek foreign investment comes as the benchmark Shanghai Composite Index has fallen nearly 17% over the past year, compared with a roughly 13% drop in the broader Dow Jones Asia-Pacific index over the same period.

In addition, according to the Wall Street Journal, the country may introduce a specialized Qualified Domestic Institutional Investor plan, allowing wealthy investors to purchase Hong Kong stocks directly.

Meanwhile, amid plans to diversify its overseas investment portfolio in the face of the US dollar’s weakness, South Korea’s pension is seeking a higher level of investment in China. “Early next year, we’ll seek approval from the Chinese authorities to buy more stocks on China’s bourses after we use up our initial quota,” a Korean National Pension Service spokesman told the WSJ.

(May 16, 2012) — The head of one of Canada’s largest pension funds, and prolific investor in infrastructure, has called on funds in the United Kingdom to consolidate and take advantage of the opportunities their home nation offers in that asset class.

David Denison, President and Chief Executive Officer of the Canadian Pension Plan Investment Board (CPPIB), said due to their relatively small size, pension funds in the UK should aim to link up to take advantage of the ‘infrastructure gap’ or shortfall between plans and funding in the country.

Denison said: “Over and above encouraging pension funds to operate as long horizon investors and own infrastructure assets, we believe the UK government should also address policy issues that will enable them to do so.”

One of these issues was to encourage consolidation of small plans to create funds with sufficient scale to invest in infrastructure.

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The CPPIB boss was speaking in London at an event held by the Canada – UK Chamber of Commerce yesterday.

Denison said the UK was already ideally placed to help nurture this type of investment. He said: “This country has had a long history of private ownership of key infrastructure such as ports, rail, airports, water, gas and electrical distribution among others. That critical public policy decision, including allowing non‐domestic ownership, has already been made, whereas many other jurisdictions are still wrestling with it on a philosophical basis.”

The comments follow a mooted move by some public sector pension funds, led by the London Pension Funds Authority to unite for the purposes of infrastructure investment. The UK government is already working with the National Association of Pension Funds and the Pension Protection Fund to create an infrastructure investment project worth £2 billion.

Denison said the CPPIB, as a global investor, ranked the UK alongside Australia and Chile as one of the best targets for infrastructure investing, in terms of legal, tax and regulatory issues.

He also warned: “So while it may still be uncertain whether significant numbers of UK pension schemes will become owners of infrastructure assets in this county, I can definitely confirm that the CPPIB, and other organizations with our orientation and capabilities, will be willing buyers if the UK government expands the supply of privatized assets.”