Reuters has launched the first benchmark index, Reuters China Pension Index (RCPI, to support China's investment management community.
RCPI measures the investment performance of China's Enterprise Annuity (EA) system, which is comprised of voluntary contribution pension plans and is part of the three pillars of the Chinese pension system. Reuters move to build the new pension index is timely as China continues efforts to diversify the country's national pension fund following the latest step towards allowing corporate pension funds to invest in China's stock markets.
'Pension reform is essential to long term prosperity in China. Reuters is the first to provide market participants with an industry benchmark that the pensions industry can use to judge performance of enterprise annuities,' says Alex Hungate, Reuters Asia Managing Director.
Reuters built the Pension Index in response to a strong demand from both local and foreign investors for benchmark indices on the developing pension industry in China. Market participants need to assess their portfolio management performance and government regulators need to measure the progress and development of its enterprise annuity system.
The enterprise annuity market is expected to grow exponentially to 60 billion USD in the next five years compared with 11 billion USD now. As the EA market is expected to invest heavily into the funds market, Reuters has plans to provide enhanced asset management content and services to support the need for investment of annuities in China.
'China has recently allowed insurance companies to invest in overseas listed Chinese securities and is now studying the possibility of allowing the national pension fund to diversify in a wider range of assets abroad,' says Serena Wang, Managing Director in Reuters China. 'With the launch of the Reuters China Pension Index, Reuters is well prepared to meet the demand for benchmark indices that these changes will create.'
As China's asset management market expands, Reuters is set to develop a series of EA indices based on the country's market environment, investment guideline from regulatory agencies, and requirements for performance measurement. In developing these indices, Reuters has consulted with relevant regulatory agencies as well as sought market validation from participants, including asset managers, trustees, administrators and custodian banks. \
The RCPI is advised by an Index Committee comprised of Reuters representatives and independent advisors, including industry practitioners and academics. It is the responsibility of the Committee to advise on all matters relating to methodology and maintenance of the RCPI, assuring that the RCPI reflects changes in the market and remains of maximum value to users.
China granted licences to 29 financial institutions to manage corporate pensions last August. Four of the firms are part-owned by Deutsche Bank AG, Fortis, Morgan Stanley and Bank of Montreal. In the next 10 years, the total Asset Under Management in China is set to surge to almost USD 3 trillion from about USD 340 billion. In all of 2005, China drew USD 60.3 billion in actual Foreign Direct Investment (FDI), against USD 60.6 billion a year ago.