China Sovereign Wealth Funds Report I Following the Leaders, 2012
Not only have we seen China’s SWFs play a stronger role on the domestic front, but all three institutions have, and will continue to, spread their activities and influence offshore. Z-Ben Advisors predicts that CIC’s allocation and indifference towards short-term yields will become a portfolio model for other institutional investors.Individual accounts managed by NCSSF will grow exponentially as other provinces follow Guangdong’s lead in allocating surpluses to the fund; NCSSF will look to on- and off-shore projects and higher-risk securities to meet its pension deadline. By 2020, SAFE will have expanded the range and size of cross-border products that manufacturers can create, followed by the gradual opening of the capital ac count to international participation. Our 2012 report analyzes the recent landmarks passed by each fund and deliberates what path, in Z-Ben Advisors’ view, each fund will take to meet their end goals.
Central Huijin may well break away from CIC by the end of 2013, which will not significantly affect the fund’s offshore portfolio. CIC will likely increase its PE and alts allocation to 60-70% in the longer term, and will dominate Asian investment projects in areas such as resources, power and infrastructure. CIC will initially achieve this through partnerships with other SWFs, SOEs, and global PE firms. By 2019, CIC could be one of the most important individual PE investors in Asia and will attract co-investors and companies looking for funding.
By 2013, we believe NCSSF will have selected its first foreign GP, as it is unlikely that the fund will be able to reach its RMB50bn PE/VC target without looking offshore. NCSSF will attract more individual pension accounts by 2015, initially gaining assets from Zhejiang, Jiangsu or Shandong. We expect to see approximately 20 regions entrust part of their pension assets to NCSSF by 2019. NCSSF will lean more towards a mid- to higher-risk portfolio that reaches out to external managers to maximize gains.
By 2013, SAFE will have established mechanisms to guide offshore RMB pools back to the Mainland through the development of existing programs. We expect SAFE to form new asset classes to guide HNWI and institutional assets overseas in the coming years, and foreign firms will be granted roles as fundraisers and managers of such programs. Pilot programs into sophisticated products (such as FX forwards and swaps) could be completed more quickly than in recent years, and domestic financial reform will gradually take place.
Potential for Other SWFs
While we suspect that the government could launch a new SWF from scratch in the foreseeable future, Z-Ben Advisors finds it unlikely that a mainland SOE will transform into a SWF. PBoC will continue to mandate funds to SOEs, which will make investments aimed at specific industry targets, such as manufacturing, both domestically and abroad. Smaller SWFs that target specific regions, similar to CAD, may emerge, especially in areas where Chinese firms have interest but limited experience, such as Latin America.
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