Principal Financial Group's joint venture with China Construction Bank Pension Management Co. will enable the U.S.-based firm to target all three pillars of China's pension system, as the country's third and most newly developed segment focused on private pension plans kicks into full swing.
On Jan. 6, Principal, based in Des Moines, Iowa, formally announced that it had acquired a 17.6% stake in CCBP. Pensions & Investments earlier reported the news in April 2022.
China Construction Bank will retain its position as majority shareholder of CCBP with a 70% stake, while the Social Security Fund of China owns the remaining 12.4% minority stake. CCBP's assets under management stood at 509.2 billion renminbi ($76 billion) as of June 30.
China's pension system comprises three pillars: the mandatory state pension plan, voluntary enterprise pension plans, and private pension plans, the last of which was only fleshed out last year.
"We are coming in at a time where changes (to China's pension system) are about to be largely in place, the latest being the private pension Pillar 3," said Thomas Cheong, executive vice president and president of Asia at Principal, in an interview.
"And we're bringing our expertise to help the pension company design, for instance, products for Pillar 3, to design plans for Pillar 2 that would better serve employee needs … and also to help strengthen the investment capabilities of the pension company so that they can compete for Pillar 1 mandates as well as deliver consistent performance across Pillars 2 and 3," Mr. Cheong added.
The ability to cover all three pillars gives the joint venture an edge over competitors, he said, as most others have licenses to operate in one or two pillars, but not all three.
The joint venture with CCBP also means that where Principal cannot market offshore pension products in China, CCBP is now licensed to do so.
"People are living longer than ever. In China — as in other markets — the percentage of the population that is at retirement age will more than double by 2050," Mr. Cheong said in its Jan. 6 announcement. "As an organization focused on financial security, we understand the importance of having access to retirement products and solutions — our relationship with CCB and SSF allows us to help provide that to customers in China."
Principal Financial Group had $608 billion in AUM as of Sept. 30.
