China's social welfare fund is busy seeking partnership accords with investment benchmarks and overseas partners to smooth its pending trade in foreign securities as it tries to boost returns amid an estimated pension shortfall.

China's National Council of Social Security Fund, the pension fund's manager, signed deals last month with Standard & Poor's and Xinhua FTSE to use their indexes as benchmarks for its US and Hong Kong equity portfolios.

The agreements, which are expected to be followed by a slew of partnership deals with global asset managers, were seen by analysts as a signal that authorities were ready to launch overseas investments but might still prefer to be cautious as these are initial steps.

"It is anticipated that the S&P 500 will be used by SSF as the tracking index for a passive index fund," the S&P said in a release, noting the gauge covers nearly 80 percent of US equities, making it a proxy of the broader market.

China's national pension fund started in April a program to seek overseas strategic partners, including custodians and fund managers, after receiving approval in March from the State Council, or China's Cabinet, to invest in overseas capital industries.

The fund, which manages 212 billion yuan (US$26.5 billion) in assets, is allowed to allocate up to 20 percent of its total assets overseas, with investment channels covering bank deposits, government and corporate bonds, stocks, mutual funds and financial derivatives.

It currently invests in domestic bank deposits, yuan-denominated securities, bonds, trusts and infrastructure stocks.

"There has been an acceleration in moves this year to help the fund out and you will likely see more deals done with overseas financial companies this month," said Wu Zhiguo, a Guohai Securities Co analyst.

"But any trial overseas investments will only be small scale and won't be into risky products."

Early this year, the welfare fund was allowed to buy into 169 large enterprises directly owned by the central government and has invested 10 billion yuan in the country's No. 2 lender, Bank of China, which raised US$9.7 billion in its initial public offering in Hong Kong in May.

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