Firms vie for occupational pension funds
By Sun Min (China Daily)
Updated: 2004-09-13 08:28

China's fund management companies are competing strongly to get the first licences to manage occupational pension funds, a market worth 50 billion yuan (US$6 billion) at present and still growing rapidly.

A number of fund management companies, including Boshi and Southern, are preparing for the launch of related management products once policy allows.

They have established special departments for the investment management of pension funds and are designing such products, awaiting for the authorities' approval to proceed with concrete investment plans, insiders said.

Chen Jun, deputy manager of the Beijing Branch of Boshi Fund Management, said that pension funds are a most attractive business for fund managers, given the increasing market demand and an expected stable fund supply.

The company is making preparation for related management services when the market is opened.

Sources with the Southern Fund Management and Yinhua Fund Management say they are designing similar products.

As a supplement to the basic pension and commercial retirement insurance, an occupational pension is provided voluntarily by enterprises for staff as a retirement benefit.

According to statistics with the Ministry of Labour and Social Security, about 7 million people in China had taken part in the occupational pension project by the end of 2003.

Liu Jiafu, vice-minister of labour and social security, said recently that the scale of the occupational pension fund reached 50 billion yuan (US$6 billion) by the end of June.

But many enterprises are still to find professional investment managers to help them manage the occupational pension fund to obtain better returns. Still more enterprises are to join the system, offering fund managers, as well as securities and trust firms, lucrative business opportunities.

"We are waiting for the issue of the detailed regulations for occupational pension fund investment management, which will set up the exact market entry threshold for fund managers and clarify the standards and liabilities in investment management," said Chen.

So far, only six fund management companies in China have been chosen by the National Council for Social Security Fund to manage part of the central strategic reserve fund for the social security system, but none has launched services for asset management for the occupational pension.

It is hoped that a breakthrough will be made in the sector within the year and new products emerge if regulators give the go-ahead.

Technically speaking, it is not much of a problem for fund managers to enter the occupational pension management business, though it does require more detailed guidelines in policies and qualified professionals to take part in the business, said Sun Qing, an analyst with China Securities Co in Beijing.

Earlier this year, the Ministry of Labour and Social Security issued a regulation on the management of occupational pension funds which, effective from May, sets some principles for the liabilities of the custodian, trustee and fund managers related to occupational pension management.

It also set a 30 per cent cap for the ratio of occupational pension funds that can be used for equities, equity funds, and investment-linked insurance products.

The maximum ratio of funds used to purchase convertible bonds and bond funds is capped at 50 per cent. And at least 20 per cent of the occupational fund should be used for treasury bonds.

Obviously, the pension fund requires a long-term and prudent investment style and the priority is fund safety and risk control, said Sun.

The exact investment scheme, however, may vary from enterprise to enterprise and fund managers can adjust their investment according to the client demand, he said.

Compared with the mutual funds that are available in the market, the clients for the occupational pension fund management are more specialized.

Already, trust firms and securities firms have started to offer such asset management and trust services for pension funds, but fund management companies are still to obtain licences from the securities regulators to enter the business, insiders say.

It is estimated that the market will expand steadily in the future and its scale may even exceed mutual funds.