Chinese pension to increase relationships

China’s RMB563bn national pension fund will reportedly back at least three to five private equity fund managers in 2009 as it looks to build its private equity portfolio. It is also set to increase its exposure to direct investments in state-owned enterprises.

China’s National Social Security Fund (NSSF) will invest in at least three to five private equity funds in 2009, its chairman said at a conference in Hainan, China.

“We will pick at least three to five private equity firms this year, focusing on investing in small and medium businesses and the service industry,” Dai Xianglong, chairman of the pension fund, said at the Boao Forum for Asia, according to Reuters.

He did not specify how much the pension fund will commit to private equity funds or whether these commitments will be made to funds investing domestically or overseas, the report noted. In 2008, almost 100 private equity firms contacted the NSSF about private equity and another 20 fund managers wanted to raise funds, Dai said.

The RMB563 billion ($82 billion; €63 billion) pension fund plans to reduce its exposure to bonds and allocate more to direct investments in state-owned enterprises, Chinese state media had reported earlier this year.

Chinese regulations permit the NSSF to invest up to 20 percent of its assets overseas, but at the end of 2007, the pension service only had $1.7 billion invested overseas, according to Reuters. The pension fund is also seeking ways to make direct investments in foreign markets using the Chinese yuan. “This is a work in progress,” Dai said.

In 2008, Chinese authorities permitted the NSSF to invest up to 10 percent of its assets in domestic private equity. The pension service has since invested in RMB-denominated private equity funds managed by Hony Capital and CDH Investments.

The pension is also reported to have agreed to commit capital to RMB-denominated funds being raised by Shenzhen Capital Group, a venture capital firm affiliated with the Shenzhen government, and Science and Merchants Investment Management, which is affiliated with the government of Shanxi province.

NSSF could not be reached for comment.