Vincent Wang: An Insurer has its own extraordinary skills when engaging in pension asset management

Time: August 31 2016, Author: Ping An of China [Size：largemedium small]

When talking about pension investments, Vincent Wang has views, data and cases at his fingertips.
With a background in engineering and finance, he began his career from aggressive secondary markets, and later specialized in asset allocation in an asset management company. Now he has become the Investment Director of Ping An Annuity (PAA), being a master in corporate annuity management. 'From PA's first corporate annuity project up till now, I have become a top player', he said jokingly to the journalist.
Currently, PAA is China's biggest annuity fund manager. Through 11 years' effort in the pension market, PAA has formed an investment style and concept of 'maintaining stability and sustainability', ensured safety in pension management, and avoided being highly aggressive or trying to gain the highest return. PAA continues to receive a positive return above the performance benchmark, outperforming the market average for long. Days ago, he received the interview from Shanghai Securities news (SSN) on market hotspots.

Long-planned socialized management of the basic pension fund
SSN: Currently, how does PAA view its pension asset management business?
Wang: Our strategic positioning is to become an industry-leading pension asset management institution.
As of the end of 2015, PAA's mandate and investment size of corporate annuity and other pension assets totaled to nearly RMB340 billion, coming out on top among pension insurance companies in mainland China. Of them, the mandate size of corporate annuity hit RMB127.2 billion, accounting for 22% in those mandated by legal persons; the investment management size reached RMB132.6bn, accounting for a nearly 15% share in the market with 20 investment mangers; PAA had 68 corporate annuity clients being central government-owned enterprises, accounting for 70% of the central government-owned enterprises which have introduced corporate annuity, being China's largest corporate annuity fund manager.
The socialized management of the basic pension insurance fund has been planned for long, and it has been included in the pilot program, with some relevant policies launched successively. The National Council for Social Security Fund (SSF) will select managers soon; and PAA is a very likely candidate. This is the first time for the SSF to grant qualifications to insurers.
In addition to corporate annuity under management, we have also taken an active part in the investment management of pension insurance products. In the future, we will engage in the investment management of occupational annuity as well.
SSN: What advantages do you have when striving for the market share in terms of investment management of basic pension insurance fund?
Wang: PA has considerable advantages. For example, PA has great strengths in fixed-income investments. Currently, we have the largest investment amount among all institutions, with leading performances. Take AnYi for example. It is a fixed-income pension product issued by PA, with the biggest size and the highest compound return rate. I believe the basic pension insurance fund will still be primarily invested in fixed-income assets. For another example, PA has also gained much experience in the non-capital market investment field, being in the forefront of the industry. We hope our extensive experience could be copied in the basic pension fund management.
SSN: Corporate annuity has seen rapid growth in the past, and it has slowed down obviously. It seems it is not so easy to achieve growth as before, doesn't it?
Wang: Exactly. Some large-sized central government-owned enterprises and state-owned enterprises have established corporate annuity. It will be difficult to achieve growth without support of new policies. We tend to deal with the existing market more.
We have been calling on the government to provide further support for corporate annuity tax. As restricted by their own conditions, plenty of enterprises lack enthusiasm to introduce corporate annuity.
Additionally, occupational annuity will also see rapid growth in the future. Once started, we expect it will grow by about RMB150 billion each year.
　

Insurers have its own unique strengths in pension asset management
SSN: As an investment management institution with an insurance company background, what advantages do you have when compared with other types of institutions in the market?
Wang: insurance companies have their own strengths when engaging in pan pension asset management. Firstly, insurance companies value the role of asset allocation; secondly, insurance companies emphasize balanced asset allocation, with strong asset management capability; thirdly, insurance companies focus on long-term, stable investment income; and fourthly, insurance companies attach great importance to risk management. Owing to all of this, pension insurance companies rank among the most important investment management institutions.
According to the research by overseas institutions and our verification, more than 90% of the pension management income depends on asset allocation, which determines pension management performances.
SSN: What are the difficulties in annuity management?
Wang: The difficulties in annuity management lie in allocation. Traditional allocation technologies either maximize returns while controlling risks or minimize risks while reaching return targets. Traditional technologies are useful in practice, but bring about big fluctuations to the overall portfolio and rely heavily on your subjective expectation about assets; however, sometimes subjective expectation is false.
Currently, in the low-interest rate market environment, we will try to adopt a balanced asset allocation, diversifying risks as much as possible and avoiding concentrating risks in the same class of asset, which is our 'risk parity' allocation technology. We hope to provide customers with a long-term, stable performance instead of using aggressive investment strategies to struggle for a temporary return.
On investment performances, from 2012 to 2015, PAA was one of the 6 investment managers whose single plans had exceeded the interest rate on 3-year term deposits for 4 years in a row in the market, and was the only pension company among them. Amid sharp market volatility in 2015, PAA's overall investment return rate still reached 10.36%, 0.48 pps higher than the market; the return rate of equity-based single plans reached 12.11%, 1.61 pps higher than the market, ranking No.6 in the market.
SSN: What support has PA Group provided to PAA?
Wang: Currently, PAA's registered capital has reached RMB4.86 billion, being the largest pension insurance company in the market in terms of the registered capital. Capital strengths enable PAA have adequate capital and solvency, which provide a solid foundation for its sustainable, healthy development.
Bolstered by the Group's full set of licenses in financial business, PAA is the only investment manager being allowed to cover all alternative investments in the market, providing all-around support for the new area of annuity investments. Through close cooperation with PAG's subsidiaries like PAT, PAB, PAAMC and PA-UOB, PAA can design tailor-made products for annuity clients to meet their different demands and provide a solid foundation for annuity management and services.