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Report: China’s largest pension to invest in private equity

In a significant move by the Chinese government, the country's National Social Security Fund has been allowed to invest in non state-backed domestic private equity funds.

The Y516 billion ($74 billion; €48 billion) National Social Security Fund, mainland China’s largest, has been permitted to invest up to 10 per cent of its assets to invest in domestic private equity funds that are not backed by the Chinese government, according to a report in the 21st Century Business Herald news daily.

NSSF’s private equity exposure is currently limited to direct investments and commitments to state-backed domestic private equity funds such as its Y1 billion commitment to the Y20 billion Bohai Industrial Investment Fund.

The South China Morning Post reported that the pension fund earned returns of over Y100 billion in 2007 and aims to manage assets of Y1 trillion by 2010. The newspaper noted that the pension fund is not permitted to invest in overseas private equity funds and its overseas portfolio of investments makes for less than 20 percent of its assets.

The move by the authorities could see the pension fund invest up to Y50 billion in domestic private equity funds.

NSSF will also reportedly be investing Y1 billion each in domestic funds that are to be established by domestic private equity fund manager CDH Investments and Hony Capital, which is the investment arm of Legend Holdings, the parent company of computer giant Lenovo.

Of late, Chinese banks, securities firms and insurers have asked the state to allow them to invest in private equity funds. The Chinese government’s decision to allow its largest pension fund to invest a significant proportion of its assets in private equity signals its growing support for the industry domestically. Last year, the government also approved the establishment of six domestically-run private equity funds.

NSSF could not be reached for comment.