The annual report card of the social security fund was released: the average annual income since its establishment was 7.7%, and the investment performance was in the forefront of the world

Huang Huiling, researcher of Caijing

Editor|Lu Ling

On September 28, the National Council of Social Security Fund disclosed its 2022 annual report (hereinafter referred to as the "Report"), with an investment return of -5.07% in 2022 and an average annual return of nearly 7.7% since its inception.

The floating loss in the income of the social security fund is rare in recent years. "Mainly in 2022, the global political and economic situation has undergone profound changes, the turmoil in the financial market has intensified, the investment and operation of funds are facing a very difficult situation, and the major asset classes at home and abroad have fallen sharply." The relevant person in charge of the social security fund said.

However, compared with similar international institutions, the yield of social security funds is relatively stable. It is understood that the average annual return of the social security fund in the past 23 years since its establishment is nearly 7.7%, which is significantly higher than the inflation rate and investment target in the same period, and its investment performance is in the forefront of similar institutional investors in the world.

"For the allocation of equity assets, it is necessary to tolerate short-term market fluctuations." The relevant person in charge said that the social security fund will continue to strengthen the analysis and judgment of the macroeconomy and capital market, improve the risk management and control mechanism, and strive to grasp investment opportunities in market fluctuations through proactive management.

Rare floating losses

The annual report of the Social Security Fund discloses the investment, operation and financial situation of the National Social Security Fund and the Central Subsidy Fund of Individual Accounts (hereinafter collectively referred to as the "Social Security Fund"). Among them, the national social security fund is the national social security reserve fund, which is used to supplement and adjust social security expenditures such as pension insurance during the peak period of population aging.

The report shows that in 2022, the investment income of the social security fund will be -138.090 billion yuan, and the investment yield will be -5.07% (the investment return after deducting non-recurring profits and losses will be -4.53%). This is also a rare year for the social security fund in recent years, and the degree of floating loss is greater than -2.28% in 2018 and less than -6.79% in 2008.

From a global perspective, the intensification of the Russia-Ukraine conflict has led to a surge in international energy and food commodity prices, the acceleration of the contraction of liquidity by major global central banks in the context of high inflation, and turmoil in global capital markets, with the Morgan Stanley Global All Country Dividend Reinvestment Index falling 18.4% and the Bloomberg Barclays Global Aggregate Bond Index falling 16.2%.

From a domestic point of view, the economy is facing the triple pressure of demand contraction, supply shock, and weakening expectations, the growth rate has slowed down, coupled with the tightening of international liquidity and other factors, the domestic stock market has also fallen sharply, the CSI 800 index fell 21.3%, and market confidence is generally insufficient.

However, compared with the performance of similar international institutions, the yield of social security funds is still relatively stable. In 2022, against the backdrop of high inflation, major central banks around the world accelerated their liquidity contraction, stocks and bonds fell sharply, and major institutional investors generally had negative returns.

Among them, the Norwegian government Global Pension Fund (GPFG) yielded -14.1%, the Swedish National Pension Fund (AP1~AP4) yielded from -11.9% to -5.8%, the Korean National Pension Fund (NPS) yielded -8.2%, and Temasek (Temasek) had an investment yield of -5.1% in fiscal 2022. Compared with the above-mentioned institutions, the overall floating loss of the social security fund is relatively limited.

"Social Security has only made a small loss in a few of the last 20 years, and all during the global bear market. At the same time, when making money, the return is very high, 8.3% annualized, which is a very excellent return. Hong Hao, chief economist of Sirui Group, told Caijing that the performance of the social security fund just shows that the market was very difficult last year.

Looking back at the operation in 2022, the relevant person in charge said, "Although there was a certain book loss that year, it also laid the foundation for obtaining long-term better returns." Throughout the year, the relevant assets of the social security fund outperformed the corresponding market index, and within the risk level that the fund could bear, they met the risk budget requirements. ”

Bucking the trend, an additional 130 billion yuan was added

It is worth noting that in the face of a relatively unfavorable situation, the social security fund invested an additional 130 billion yuan in stocks against the market.

This is not the first time that the social security fund has bucked the trend. In 2016, when A-shares were turbulent and the overall performance of equity funds was dismal, the social security fund achieved a positive return of 1.73% by "seizing the advantage of low valuation after the sharp decline in the stock market and selecting merit to increase entrusted investment".

Since its establishment 23 years ago, the average annual return of the social security fund has been nearly 7.7%, which is significantly higher than the inflation rate and investment target in the same period, and its investment performance is in the forefront of similar institutional investors in the world. The relevant person in charge analyzed that the important reason is that according to the nature of long-term funds and strong risk tolerance, a reasonable proportion of stock assets have been allocated, focusing on sharing the long-term results of national economic growth, and have achieved better long-term returns, even when the market is down.

The investment operation of the Social Security Fund includes three levels: strategic asset allocation plan, annual tactical asset allocation plan and quarterly asset allocation execution plan.

The strategic asset allocation plan determines the proportion and proportion range of medium- and long-term target allocation of various assets. Caijing calculates based on public data that the proportion of social security fund investment in secondary market stocks is between 5% and 20%, similar to secondary bond-based or partial debt hybrid funds in public funds.

At the tactical level, the Social Security Foundation customizes annual and quarterly plans and dynamically adjusts them to market conditions. Looking back at the annual report of the social security fund, the social security fund is good at grasping the general trend. For example, in 2015, seize the development opportunities of the "Internet +" industry. In 2019, we will promote the improvement of the entrusted stock product system and increase investment in listed companies in strategic emerging industries and scientific and technological innovation enterprises.

In 2022, the Social Security Fund emphasized "the great of the country", formulated and issued the "Industrial Investment Guidelines of the National Social Security Fund Council", optimized the investment layout around serving the major strategic key areas of the country, and supported the development of the real economy and the construction of a modern industrial system through investment practices such as stocks, bonds, and equity.

It is worth mentioning that in 2022, the social security fund will explore innovative sustainable investment practices, add two types of new entrusted products for domestic stocks, sustainable investment and strategic emerging investment, and add relevant evaluation indicators to the evaluation of investment managers.

Previously, Li Yimei, general manager of Huaxia Fund, attended the 2023 Caijing Sustainable Development Summit Forum and said that the acceptance of sustainable investment concepts by large asset owners has increased, providing more long-term financial support for the ESG investment system. "In particular, it is of great significance for the National Social Security Foundation to launch a tender for sustainable investment products in China."