The Stock Investment Performance of Pension Funds in China

Abstract

ABSTRACT This article analyzes the investment performance of China’s National Social Security Fund (CNSSF) in the stock market. The results show that the investment performance of entrusted social security funds is better than that of direct investment by China’s National Council for Social Security Fund. The annual risk-adjusted return on entrusted investment is 9.54% higher than that of direct investment. This article further investigates the performance of entrusted investment with respect to each entrusted fund company and finds that only 5 of the 16 entrusted social security funds generate significantly positive risk-adjusted returns, suggesting the existence of a principal-agent problem in entrusted investment. Controlling for factors such as the fund’s asset allocation and the characteristics of the fund family, we find that private information contributes to the investment performance of the CNSSF. Moreover, we find a synergistic effect between private information and the extent of alumni networks among fund managers at a company and a substitution effect between private information and the degree of closeness of those alumni networks on investment performance.