Reuters readies enterprise-annuity index for China

The data provider worked with Stirling Finance in Hong Kong to drum up ways to support mainland fund managers.
Reuters is introducing an index tracking investment performance among ChinaÆs fund managers licensed to run money for enterprise annuities. The data vendor, in tandem with Hong Kong-based consultancy Stirling Finance, will launch its first EA index in Shanghai on 31 March, says Patrick Liu, the firmÆs Hong Kong-based Asia head of business management for research and asset management.

The indices, which Reuters will make freely available, are a way for the company to establish a presence in China and alert market participants to its data and research services. Liu acknowledges that Reuters and its funds-data unit Lipper were late to some markets in Asia. ôBut China offers us a blank sheet,ö he says, ôand we believe it will be a big market.ö

Liu contacted StirlingÆs principal, Stuart Leckie, and its consultant, Yasue Pai, to brainstorm ideas, and landed on the idea of a series of indices to track performance for ChinaÆs nascent EA industry.

Last year the Ministry of Labour and Social Security, in conjunction with other regulators, drew up investment guidelines and handed out the first batch of EA investment-management licenses.

The key rule is that an EA-authorized fund can invest up to 30% in equities, up to 50% in bonds and must have at least 20% in cash. ReutersÆ first index sets allocations at the midpoint of what the guidelines allow (50% bonds, 20% equities, 30% cash) and tracks three benchmarks û the clearing houseÆs bond index, the unified Shanghai/Shenzen 300 for equities and the 12-month deposit rate for cash.

The next move, expected by year-end, is to launch an index based on actual, market-average performance, using LipperÆs methodology. This has to wait because the first EA products are only now making their way to market and thereÆs no track record. The third planned index, due in mid-2007, is at the portfolio holdings level, in order to compare oranges with oranges by classifying different types of funds according to Lipper.

ôThe industryÆs feedback has been positive,ö Liu says. ôThis is the first benchmark for enterprise annuities that people can use.ö

Yasue Pai says: ôFund managers or trustees can choose their own benchmark, but itÆs a good idea to come up with a passive index for everyone. ItÆs fair, and fund managers wonÆt have to scramble to come up with their own, and it will let trustees and regulators monitor how the managers perform. It will also let fund managers see how theyÆre doing compared to their peers.ö

ChinaÆs MLSS has awarded EA investment licenses to two insurance company affiliates (China Life Asset Management and Huatai Asset Management), two pension insurance companies (Ping An Pension and Taiping Pension), two securities companies (CICC and Citic Securities) and nine fund management companies (Boshi, China Merchants, China Southern, ChinaAMC, E-Fund, Fortis Haitong, Fullgoal, Harvest and Yinhua).
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