Report: Chinese pension wants exposure to foreign private equity

China’s National Social Security Fund, which started backing Chinese fund managers last year, is reportedly seeking permission to commit capital to foreign private equity firms as it looks to diversify its portfolio.

The National Social Security Fund (NSSF), China’s largest pension fund, is requesting for approval from authorities to invest in foreign private equity funds for the first time, sources told Reuters.

The report added that NSSF is working on a proposal with China’s ministry of finance and the ministry of human resources and social security, which oversees the pension fund’s activities.

The RMB563 billion ($82 billion; €63 billion) pension has been a late entrant into the private equity asset class and was allowed exposure to private equity only last year. NSSF can currently invest up to 10 percent of its assets in private equity.

It started making commitments to domestic private equity fund managers last year but has not committed to a non-Chinese manager yet.

NSSF has thus far committed RMB2 billion each to RMB-denominated funds managed by CDH Investments and Hony Capital. It is also reported to have agreed committing capital to RMB-denominated funds being raised by Shenzhen Capital Group, a venture capital firm affiliated to the Shenzhen government, and Science and Merchants Investment Management, which is affiliated to the government of Shanxi province.

In April this year, Dai Xianglong, chairman of NSSF, said at a conference in Hainan, China that the pension was looking to commit capital to at least three to private equity firms in 2009.

Over the last two years, there has been a concerted effort on the part of the Chinese government to promote the private equity asset class. This has been done through allowing securities companies to invest in private equity and through the creation of private equity joint ventures between various municipal governments and private firms.

If NSSF does obtain permission to invest in overseas private equity funds, it could go on to become a key limited partner in a region where most institutions are either still reluctant to invest in the asset class or are not permitted to do so.

NSSF could not be reached at press time.