San Francisco City & County Employees' Retirement System hired two money managers that will manage a combined opportunistic allocation of $400 million that will be largely invested in China A shares listed in the Shanghai and Shenzhen stock exchanges, said board secretary Norm Nickens.
The $200 million allocation each to two Beijing-based managers, Cephei Capital and Springs Capital, which was approved at a meeting Oct. 12, is one of the largest by a U.S. pension fund.
Cephei Capital will invest using an absolute-return strategy, while Springs Capital focuses on growth stocks, agenda material for the pension fund shows.
The recommendation by the pension fund's investment staff to hire the two managers had been on the retirement system's agenda since at least the spring, but the board wanted additional due diligence, including on-site visits to the managers by the $20.9 billion pension fund's general investment consultant, NEPC.
NEPC said in recommending their hiring in an Oct. 12 report that both managers had strong investment performance track records. Both invest in A shares, which are public equity securities listed on the Shanghai or Shenzhen stock exchanges. The equities are traded in renminbi.
Traditionally, investments in equities on the exchanges had been closed to outside investors, but the Chinese government in 2002 started allowing qualified investors to apply for licenses to invest in the markets. Earlier this year, China allowed U.S. asset owners to invest directly in A shares without going through an offshore manager, but NEPC said in its report that it believes “on the ground research is paramount” to investing in the A-shares market and recommends consideration of locally based managers.
Index provider MSCI chose not to include the A shares in its global indexes during a 2016 review, but it will reconsider the issue next year.
“It is expected that MSCI will at some time decide to include A shares within their indexes, and it is widely projected if this happens, it would provide a boost to the market, resulting in significant capital inflows,” the NEPC report said.