China Pension Fund Seeks Foreign Investments

Chairman of $316.6 billion fund cites diversification as motivation for overseas assets.

China’s 2.1 trillion yuan ($316.6 billion) national pension fund is seeking to increase its overseas investments in a move to diversify its holdings and lower risk, chairman Lou Jiwei told the South China Morning Post.

Lou said holding a high concentration of domestic assets in the fund’s portfolio carried with it an unnecessary risk.

“Putting such a large amount of assets in the China market will make the risk too concentrated and it needs diversification,” he said in an interview during the ongoing Communist Party congress. “Firstly, the current proportion is far shy of the government-approved cap and, secondly, it’s for the sake of risk diversification,” said the 67-year-old, who stepped down as finance minister last year.

The National Council Social Security Fund (NSSF) was created in 2000 to aid the country’s aging population, and be a strategic reserve to support future social security expenditure. According to the NSSF’s most recent annual report, its overseas investments accounted for only 6% of its total investible assets. It also said the annual investment yield for the national social security fund averaged 8.4% since it was launched more than 16 years ago.

Lou said the NSSF would only invest in overseas assets if the returns proved promising, and added that he was interested in increasing the fund’s alternative assets. However, he acknowledged that his staff did not have a lot of relevant experience concerning alternative investments.

“We have only one goal,” Lou said. “That is to achieve a high risk-adjusted, long-term return and ensure the appreciation of the social security fund.”

Lou also said the countries’ currency rates would be a major factor in making overseas investments because many commodity-based economies could be significantly affected by fluctuations in their value against the US dollar.

He said that the foreign investments it chooses would depend on specific projects, rather than on which country the investment was in.

“Investment is very complicated,” said Lou. “Some countries are commodity-exporting countries. If you invest in them, it is equivalent to investment in crude oil. Its exchange rate and stocks usually change in line with the oil price.”

Despite seeking more foreign investments, Lou said he was confident that China’s economy would continue to strengthen. “China is a big economy, with huge population and strong domestic demand,” he said. “No matter what happens externally, we are not afraid.”

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