China’s Huge State Pension Fund Eyes Private Equity

BOAO, China (Reuters) – China’s national pension fund, the National Social Security Fund (NSSF), said on Sunday it is looking for at least 3-5 private equity funds to help it manage part of its 563 billion yuan ($82 billion) portfolio.

The fund, which has a goal of amassing 1 trillion yuan in assets by the end of 2010, intends to reduce its bond exposure and buy more direct equity stakes in state firms this year, state media reported earlier this year. [ID:nPEK62111]

“We will pick at least 3-5 private equity firms this year, focusing on investing in small and medium businesses and the service industry,” Chairman Dai Xianglong said at the Boao Forum for Asia held in Hainan.

Dai did not say how much money was involved or whether the investment would be in foreign or domestic markets.

“Last year nearly 100 foreign and domestic firms contacted us about private equity, and another 20 wanted to raise funds,” Dai told a panel discussion.

After investing in China Development Bank, Agricultural Bank of China and the Beijing-Shanghai express railway project, the fund said it would increase direct investment in state-owned companies and firms with local government backing.

The NSSF is allowed by law to invest up to 20 percent of its assets in foreign markets but had only invested $1.66 billion outside of China as of the end of 2007.

The NSSF is also looking at ways to use the Chinese currency, the yuan, to invest directly overseas, but Dai did not elaborate.

“This is a work in progress,” he said.

The Chinese yuan is not fully convertible, making direct investment impossible, but some financial regulators around the world support a larger role in international finance for the yuan, to help offset reliance on the U.S. dollar.

Chinese central bank governor Zhou Xiaochuan advocated last month that the U.S. dollar eventually should be replaced as the world’s main reserve currency by the International Monetary Fund’s Special Drawing Rights [ID:nPEK184558]. ($=6.83 yuan) (Reporting by Judy Wu and Kirby Chien; Editing by Ken Wills)