Chinese Pension Asset Allocation Strategy

Presently, the old-age pension insurance system in China is severely impacted by the aging of population. The previous cash basis accounting system of the pension insurance system can't support the pension expenditure of the growing huge retired population. The government's great attention on the construction of accumulation funded pension system promotes its development. Presently, the proportion of accumulative pension system is rising annually. The enormous fund has become a major long-term institutional investor in the capital market of China. Therefore, value preservation and increment of the pension plays an increasingly important role in the investment and operation of the pension.In this paper, it mainly focuses on researching how to allocate the assets to gain good profit when taking the pension as the typical assets management for long-term investors. According to the real situation in our country, the assets allocation strategies are suggested to be adopted to reach the aim of hedge or appreciation of the pension.This paper can be divided into four parts. Part 1, firstly, the paper makes a review of the concept and theory development of asset allocation. Then it explains the definition of assets allocation of pension, its three development stages and the basic strategies. By international practice and theoretical demonstration, the importance of assets allocation toward pension investment will be proved. It will also prove that asset allocation is an important ring for investment, which is also a key factor influenced investment return. Finally, taking the largest private pension fund in America as an example, the feasibility of assets allocation strategy will be proved in reality.Part 2, Part 2 firstly gives a brief introduction of China's pension management system. Secondly, it analyzes the current asset allocation status of basic and personal old-age pension accounts, occupational pension and national social security fund. Finally, according to the current status, it points out the major problems that asset allocation is currently faced with.Part 3, the paper analyze the assets properties of the pension to determine that pension is a typical long-tem institutional investor. Based on the asset allocation strategy of long-term institutional investor, the paper set profit rate of pension and current inflation rate as evaluation benchmark to determine the realization mechanism of pension on asset allocation strategy. The realization mechanism can be simply described as: establish the asset allocation mode, stocks being primary and other assets being supplemented, to pursue long-term relatively high returns. Then, vigorously go through the tactical rebalance configuration policy in accordance with cyclical fluctuation of economic environment and correlation of different asset prices. According to the practice of asset allocation of international pension, it is proved that the asset allocation strategy can reach the expected benefit goals.Part 4 starts from China's actual situation, refers to some advanced international asset allocation practices of pension assets, and brings forward an overall strategy for China's asset allocation. First, it briefly introduces the sorts of asset in China's pension asset allocation, as well as simply analyzes the risk return characteristics of various assets. Second, it expounds in short the general strategy for China's pension asset allocation. Third, strategic pension asset allocation and tactical asset allocation are respectively mentioned to discuss the general strategy for the allocation of pension asset. On one hand, we should choose equity capital as the main asset, and allocate mainly in China's capital market in the long run. On the other hand, considering from the tactical perspective, we should think over the fluctuations of economic cycle, and collocate different assets to China's pension in different phases of economic cycles. Moreover, flexibly adjust China's pension assets according to the changes of different economic indicators.Finally, because of my limited academic level, there are many shortcomings existing in this paper. For example, my analysis on the asset allocation strategy of China's long-term pension investment is still a kind of qualitative analysis, which is lack of demonstration from relevant historical empirical data. As to the proposition that asset allocation can increase investment income, my analysis is also not comprehensive enough; as to the proposition in asset allocation that delivered investment can achieve risk control, my analysis has not yet outspread; and relevant system restriction that is set to prevent risks etc. have not been mentioned in this paper. And I expect criticism and correction from teachers.