China’s government-controlled National Social Security Fund (NSSF) has launched its third region-specific megafund in Shenzhen at a size of 5.1 billion yuan ($708.5 million) to primarily invest in technological innovations in the country’s southern Greater Bay Area (GBA).
The mega fund will focus on investments across GBA, formally known as the “Guangzhou-Hong Kong-Macao Greater Bay Area,” which consists of nine cities and two special administrative regions in southern China. The term was first coined by the Chinese authorities in 2017 as they aimed to turn the region into an integrated economic and technological centre.
The GBA fund will invest in early- to growth-stage companies with a focus on industries such as new-generation IT, high-end equipment manufacturing, biomedicines, new materials, and new energy, said the fund’s manager Shenzhen Capital Group in a statement on Thursday.
The NSSF, which is tasked to supplement the state pension system in China, poured 5 billion yuan ($694.6 million) into the GBA fund, while the state-owned investment firm Shenzhen Capital Group contributed 100 million yuan ($13.9 million) as the general partner (GP), according to business registration details.
The new GBA fund is situated at the Shenzhen Park of the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone (HTCZ), a joint initiative by authorities in Hong Kong and Shenzhen to build a hub for technological collaborations between the two cities.
The fund’s GP, Shenzhen Capital Group, was established in 1999 with the support of the Shenzhen government to primarily back small- and medium-sized enterprises (SMEs) including startups, as well as growth- and mature-stage companies.
This government-backed investment powerhouse manages 182 private equity (PE) funds, 16 funds-of-funds (FOFs), and 20 specialised funds targeting areas like real estate and private investment in public equity (PIPE) transactions. Its overall assets under management (AUM) stand at 473.9 billion yuan ($65.8 billion), according to the company’s website.
As of December 31, 2023, Shenzhen Capital Group has invested 107.2 billion yuan ($14.9 billion) in 1,785 companies, of which 263 went public across 17 stock exchanges globally. Its investments span areas like the internet, biotech & healthcare, IT, new energy & clean tech, new materials, advanced manufacturing, and consumer goods & services.
Struggles to grow Social Security reserves
The GBA fund is the third region-specific vehicle introduced by the NSSF in less than one year. The NSSF partnered with Legend Capital, an investment firm sponsored by Chinese conglomerate Legend Holdings, in the launch of a megafund with an initial 5 billion yuan ($694.7 million) in July 2023 to invest in the national capital city of Beijing.
In November of the same year, it anchored another megafund of 5.1 billion yuan to focus on the Yangtze River Delta, a triangle-shaped megalopolis comprising Shanghai and a few eastern Chinese provinces. Investment firm IDG Capital serves as the fund’s manager.
A sovereign wealth fund in nature, the NSSF has been given more investment leeway over the years, as Chinese regulators seek to grow the nation’s social security reserves in the face of one the world’s fastest-growing ageing populations.
The World Health Organisation (WHO) estimates that the population of people over 60 years old in China will reach 28% by 2040 due to longer life expectancy and declining fertility rates.
But the NSSF, whose investment scope spans public and private equities, bonds, fund investments, and financial derivatives including certain futures, has booked disappointing returns in the last few years on the backdrop of slowing global and domestic economies.
The annual rate of return on the NSSF’s investments tumbled to -5.07% in 2022, versus 4.27% in 2021 and 15.84% in 2020, according to data published by its operator, the National Council for Social Security Fund.
By the end of 2022, its AUM was close to 2.9 trillion yuan ($402.9 billion), 90% of which was invested in the onshore market.
