New York, NY, July 20 28, 2022 (GLOBE NEWSWIRE) — The pension secures the material needs of the elderly and forms the foundation of wealth for the sustainable development of our society. China is transforming into an aging society and faces the challenges of “aging before getting rich” and “aging before getting ready”.
In response to the “aged problem” of an aging population, China has implemented a series of pension reform initiatives. The “Opinions on Pushing Forward Private Pension Funds Development” of April 2022 specified the methods for developing the third pillar. We believe that this initiative will make a difference in the following three aspects. First, the accumulation of private pensions through market-based investments helps improve the pension protection system. Second, granting tax benefits is conducive to stabilizing consumer expectations. Third, the introduction of long-term funds facilitates high-quality circulation of technology, capital and the real economy.
Globally, mutual funds have always been the dominant force in retirement plan investing. In China, repos managed by mutual fund managers reached RMB 4 trillion, accounting for 50% of the total investment entrusted to repos in China. Developing the third pillar pension is a new mission given by the times. The nature of pensions determines that the management of their investments must pursue a “long-term and sustainable” objective. In this regard, we have the following four opinions.
First, we need to create long-term sustainable investment returns for clients on the asset side
A scientific and diversified asset allocation is the key to sustainable and solid returns on the underlying assets. Stocks are the largest investment target for pensions: In 2020, mutual funds held $5.5 trillion in US IRAs, with $2.3 trillion allocated to domestic equity funds and 0.800 billions of dollars to foreign equity funds. The fact that repos continued to flow into the capital market not only contributed to the development of technological innovation capital in the United States, but also pushed American stocks out of the long-term and growth bull run. slow. Global pension investment is diversifying with an increase in green investments, offshore investments and alternative investments. This means that a diversified allocation will provide a tailwind to improve the long-term risk-reward ratio of investment portfolios.
In terms of technological means, smart digital integration could be the solution to the problems posed by long-cycle, large-scale and cross-cutting investments, as well as mass customers. Strengthening asset management across the business chain through smart digitalization will reshape the efficiency and quality of value creation.
On the product side, target pension funds can better translate fund returns into returns for clients. These funds allow for a stable, long-term retirement investment and are an appropriate default choice for investing private retirement accounts when combined with the life cycle of individuals. The results show that the target pension funds are ushering in a period of rapid development thanks to strong performance and good control of risk and retracement. By the end of 2021, pension target funds exceeded RMB 110 billion.
Second, we need to expand long-term sustainable funding sources for the third pillar
The development of the third pillar must be consistent with the goal of common prosperity, emphasizing inclusiveness and covering as many people as possible. However, pure tax benefits do not provide sufficient incentives to middle and low income groups, as confirmed by the pilot launch of the third pillar at an early stage. Experience abroad shows that in addition to tax advantages, support for the flexible transfer of private pensions between different pillars can play an important role in promoting the development of the third pillar. We recommend opening the transfer channel between company annuity, occupational annuity and private pension accounts.
Third, more effort needs to be made to leverage ESG investments to share long-term sustainability dividends
A sustainable and quality development of the company is the key to a long-term return on investment. The application of ESG strategies in pension investing has become a mainstream trend as ESG strategies are highly compatible with the characteristics of long-term, risk-averse pension investing as well as a comprehensive measurement of social returns.
In addition to financial statements, ESG investments will measure the non-financial risks faced by companies. Those with poor ESG performance in investment portfolios will be exposed to significant risks. ESG investing removes tail risk from portfolios by assessing the value of companies on all fronts. Environmental and social problems can only be solved by major technological innovations in the long term. In this process, there will certainly be key technological breakthroughs and industry upgrades, delivering long-term alpha returns in EGS investment strategies. ESG investing will also consider the spillover costs caused by companies to society, re-examine the value creation and allocation of companies to society, and genuinely weed out outstanding companies that can create value both economic and social. Institutional investors can allocate resources through ESG strategies or participate in corporate governance to improve the quality of the company, in order to promote quality and sustainable development of society.
Finally, mutual funds should further improve their capabilities for sustainable long-term asset management for better pension management.
Essentially, pension management involves managing the long-term allocation of funds between categories. Mutual funds should improve their response to change and uncertainty and build capacity for sustainable asset management.
China Southern Fund Management Co., Ltd. (“Southern Asset Management”), one of the earliest approved fund management companies in China, has remained true to its original aspiration and continuous efforts for 24 years. She has taken an active part in and promoted the development of China’s mutual fund industry. Since 2002, when it was enlisted as an investment manager for the National Social Security Fund (“NSSF”), Southern Asset Management has been deeply involved in the pension business for almost 20 years and is dedicated to provide “one-stop lifecycle management” of retirement assets. By the end of 2021, the company had more than RMB 350 billion in pension assets under management, considered a trustworthy and credible manager by the National Board of Social Security Fund (“NCSSF”), as well as company annuities, professional annuities and retirement objectives. finance customers. In the future, we will continue to implement top-down design for high-quality development of the pension industry and become an eternal century-old enterprise.
The construction of the third pillar has been launched. We are fully aware of our responsibility and the social expectations of us. We will keep our mission of “continuously creating value for our clients” firmly in mind and strive to pave the way for mutual funds to serve the national pension system. Thanks!
Company name: China Southern Asset Management
Contact person: Si Chen
Email: [email protected]