NSSF Seeking Approval For Billions Worth of PE Investments

(Reuters) – China’s national pension fund, the National Social Security Fund (NSSF), is seeking cabinet approval to invest billions of dollars in foreign private equity funds this year, sources told Reuters on Monday.

The NSSF is working on a formal proposal with China’s finance ministry and the Ministry of Human Resources and Social Security, which also supervises the pension fund, to detail its plans, said the sources who had been briefed on the matter.

“The goal and the path is very clear while the only question is when it can win the final approval as it does need time to fix all these important details,” said one of the sources, adding the finance ministry agreed in principle to let the plan go forward.

Final approval is expected in the second half of this year and the NSSF aims to complete its first foreign private equity deal before the end of 2009, said the source.

“Timing is important. You of course do not want to do a deal when the market already fully recovers,” he said.

The NSSF aims to invest no more than 10 percent of its roughly $80 billion in total assets, or about $8 billion, in both domestic and global private equity funds, said the sources.

The sources declined to be identified due to the sensitive nature of the matter, while a representative for the NSSF was not be immediately available for comment.

The fund is already permitted to invest in domestic yuan-denominated private equity funds but it is not yet allowed to commit its capital to any foreign private equity funds.

Last June, Dai Xianglong, the head of the national pension fund, announced it had agreed to invest 2 billion yuan in each of two domestic private equity funds launched separately by CDH Investments and Hony Capital.

Last month, Dai said at a forum that the NSSF was looking for at least 3-5 private equity funds to help it manage part of its 563 billion yuan ($82.5 billion) portfolio though he didn’t say whether the NSSF would invest in domestic or foreign funds.

SOVEREIGN WEALTH FUNDS

Investing in overseas private equity funds, which the sources said included growth capital, real estate and buyout funds, would further diversify the NSSF’s holdings, which are concentrated in domestic assets as well as overseas stocks and bonds.

To many foreign private equity managers, the NSSF, the State Administration of Foreign Exchange (SAFE) and China Investment Corp (CIC) are all regarded as sovereign wealth funds from the perspective of fund-raising.

SAFE is China’s foreign exchange watchdog which controls around $2 trillion in foreign exchange reserves. SAFE has invested money in foreign funds including U.S. private equity giant TPG Capital LP TPG.UL.

But officially, China recognizes CIC, the $200 billion investment agency, as the sovereign fund representing China.

“Many foreign asset managers have made NSSF and CIC key elements of their China plans,” said Michael McCormack, executive director of fund industry researcher Z-Ben Advisors, in his recent Chinese sovereign funds report.

“While most have reassessed their expectations following the 2008 market downturn, some have yet to process its full implications for China’s sovereign wealth funds,” he said, raising the prospect of tougher competition among private equity firms for Chinese state funds.

($1=6.827 Yuan)
By George Chen, Asia Private Equity Correspondent
(Editing by Lincoln Feast)