China's push to get its citizens to shoulder a greater share of their retirement savings burden got off to a slow start last year, with a vicious bear market dogging the debut of the "pension target" fund-of-funds offerings sanctioned by regulators as a new third pillar of the country's retirement safety net.
But few market participants appear eager to bet against the house.
Amid signs policymakers are committed to making the fully funded savings scheme an important piece of China's retirement puzzle, market participants predict near-term obstacles will be overcome, positioning the target-date funds — a mutual fund-based fund-of-funds vehicle with fees of between 50 basis points and 100 basis points — as a compelling business opportunity for money managers.
The past year — which saw China's Shanghai and Shenzhen stock markets both dropping more than 20% — resulted in an "asset gathering hiccup," said Nixon Mak, Hong Kong-based pensions and solutions strategist, Asia-Pacific, with Invesco Ltd. Only a fraction of the 44 pension-target funds approved since August have come to market, he said.
Over the medium to long term, however, those funds — positioned by regulators as a third-pillar complement to the government's pay-as-you-go first pillar and its corporate enterprise annuities second pillar — are set to be "one of the growth engines" for raising assets in China, he said.
China is actively promoting the policy framework for that third pillar, a retirement savings initiative China Southern Asset Management Co. Ltd. believes is both "imperative and bound to succeed," said Yu Jin Hua, head of macro research and asset allocation with the Shenzhen-based manager of roughly 1 trillion yuan ($148 billion) in assets under management.
Even so, there are likely to be bumps along the way.