Overseas pension investment urged by ING
By Zhang Dingmin (China Daily)
Updated: 2004-09-14 08:46

China should allow its growing pension funds to invest in overseas markets to reduce risk and maximize returns, ING Investment Management said yesterday.

The company, the largest investment management unit of global financial services provider ING Group, said during the 28th General Assembly of the International Social Security Association that China could benefit from lower volatility and higher returns, if rules over international investments were relaxed.

"Expectations among the current workforce that they will be able to maintain the same, or close to, the standard of living they currently enjoy, have prompted many pensions authorities to recalculate their future liabilities," said Chris Ryan, chief executive officer of ING Investment Management Asia Pacific.

"The result is that there is clearly an asset-liability mismatch and this is likely to grow given the expected fall in the workforce," he added.

With what is probably the world's largest ageing population, China is reforming its pension system by promoting occupational and private pension plans.

Although China's total business annuities stood at only 35 billion yuan (US$4.2 billion) at the end of last year, the number is expected to exceed 1 trillion yuan (US$120 billion) when the market becomes fully developed.

A recent survey sponsored by Taiping Life Insurance Co Ltd, which covered 338 enterprises in China, revealed 35 per cent of the respondents planned to set up annuities.

China's pension funds are restricted to investing in a narrow range of areas, mostly bonds and money market instruments. They are prohibited from investing in overseas markets. The Government recently allowed selected insurance companies to invest their foreign exchange funds in overseas markets, but deregulation to allow institutional investors to invest internationally has yet to be introduced.

In the medium to longer-term, investing a portfolio across a mix of asset classes will translate into a better risk-return profile for funds, said Ryan, who is also deputy chairman of China Merchants Fund Management, a Sino-foreign joint venture 30 per cent owned by ING Investment Management.

ING is looking for business opportunities in China, including the pensions market and banking, senior companies executives said last month. The company is actively offering pensions services in 30 countries around the world.

Also yesterday, it said it had received approval from China's banking regulator to start a financial derivatives business on the mainland, according to Bloomberg.

ING Bank, the banking arm of ING Group, is expected to offer currency exchange rate, interest rate and credit risk-related forwards, options, swaps and structured products through its Shanghai branch starting this month, ING said in a statement. The bank still needs to meet further regulatory requirements, ING said.