Cathay Life’s asset management JV gets Hong Kong licences
Hong Kong’s Securities and Futures Commission has granted licences to an investments affiliate of Taiwan’s Cathay Life Insurance to conduct asset management activities.
Cathay Conning Asset Management has been given the go-ahead from Hong Kong’s regulator with licences to deal in securities, advise on securities and manage assets.
The company is a joint venture between Taipei-based Cathay Financial Holding and Conning & Co, a Hartford, Connecticut-based asset management company focused on the insurance industry. The JV was announced in June 2011.
The establishment of a new investment company for insurance assets in Hong Kong comes at a time when some European insurance companies are retrenching. For example, last week HSBC announced the sale of its Asia general insurance businesses to Axa.
It is likely that Cathay Conning will seek to exploit some of these restructurings in order to build its investment teams. It is expected to begin activity this summer.
For shareholder Cathay Financial, the decision to centre the JV’s activities in Hong Kong represents a means of building its financial exposures to emerging markets.
At present these comprise a negligible part of the insurance company’s general account. International activity is central to the push at Cathay Financial to make asset management as important to its business as insurance and banking.
Cathay Life has $70.9 billion of assets. It has a quota of 45% of AUM allotted for international exposures, the largest such quota among Taiwanese insurance companies, and for all practical purposes the most it is likely to get.
Interest rates are very low but the thinness of domestic capital markets means something like 10% of its AUM is languishing in cash. Legacy policies leave the industry saddled with negative spreads and demographics make it difficult to grow top-line revenues.
Therefore the firm has sought to invest more wisely, in order to improve its profitability. Part of this is to tilt more to emerging markets. For example, Cathay Life has applied for a China QFII licence, as reported by AsianInvestor. But the Conning JV is the primary driver.
The 50-50 JV with Conning reflects Cathay’s need to derive greater value from its global exposures, which means primarily its exposures to US financial assets. Instead of going through the pain and expense of setting up a US research office, the firm put together the Conning deal.
Conning, with $77 billion of AUM, specialises in managing insurance assets. It has a long pedigree but most recently was acquired by private equity fund Aquiline Capital Partners, which was established in 2005 by Jeffrey Greenberg, son of Maurice “Hank” Greenberg of AIG fame.
As part of the deal, Cathay Financial also took a 9.9% stake in Conning, valued at $19 million.
Note: The original version of this story suggested both parties in the JV were expecting Cathay Financial to eventually buy out Conning's stake. Conning disputes this and we were unable to substantiate the intent.