Chinese Pension Turns to Domestic PE for Yield

(June 11, 2012)—The manager of China’s state pension system has announced a plan to enhance its domestic private equity allocation by 50% in a bid to boost investment returns, the state organ Shanghai Securities Journal has reported.

The roughly $150 billion National Social Security Fund (NSSF), which manages China’s national pension fund, will up its current investment of $3 billion to $4.71 billion by the end of the year. This move would presage a larger increase in the coming years, as the Shanghai Securities Journal quoted NSSF Chairman Dai Xianglong pledging to reach an allocation to domestic private equity of $7.8 billion by 2015.

Although, as aiCIO has reported, major private equity firms have greatly deepened their footprint in Asia, the NSSF’s shift into private equity will be strictly into domestic funds. Given that the Chinese government in recent weeks has taken steps to head off a potential economic slowdown in China, the NSSF’s announcement can largely be seen as emblematic of the government’s efforts to juice its own economy.

Officials at the NSSF have sounded a bullish note about the prospects of private equity investments in the country. “While the securities market is volatile, the primary market is full of investment opportunities for us to seek and seize,” Wang Zhongmin, the Vice President of the NSSF, told state media in March.

The NSSF’s decision accompanies the news of the China Investment Corporation’s (CIC) announcement that it has begun unwinding its fixed income and equity investments in Europe. “There is a risk that the Eurozone may fall apart and that risk is rising,” Lou Jiwei, the Chairman and CEO of the $410 billion CIC, told the Wall Street Journal. Taken together, the moves by the NSSF and the CIC could suggest a strategic retrenchment by China’s asset owners as they seek to shore up the Chinese economy while the economic prospects of the rest of the world sour.