China Life plans for more global mandates
China Life is in discussions to issue more overseas mandates this year, the insurance company’s president said.
The largest Chinese life insurer also plans to increase its exposure to overseas investments, which the firm said was important given China’s slowing growth.
The insurer will also follow the Chinese insurance industry trend of investing more in alternatives, including private equity.
Announcing its annual results this week, China Life said its investment portfolio grew by 13.6% last year to Rmb 2.1 trillion ($338 billion), up from Rmb1.85 trillion in 2013. The portfolio generated returns of 5.36% in 2014, slightly lower than the industry’s average investment returns of 6.3% last year, according to the China Insurance Regulatory Commission (CIRC).
The company said its portfolio had been adopting market-oriented entrusted investments in domestic and overseas markets, and diversified investment styles and strategies. Last year the firm outsourced 15 domestic and eight overseas mandates.
Asked by AsianInvestor whether China Life will outsource more overseas mandates this year, the firm’s president Lin Dairen said: “We are in discussions [with overseas institutions] and are studying [overseas exposure], but we cannot confirm that we will complete [the issuance of more mandates] this year.
“The regulator is relaxing the rules, and we hope to boost our investment return based on the needs of asset allocation, so different types of overseas financial assets are being considered.”
In January, the Beijing-based insurer issued three global equities mandates and five multi-asset mandates worth a total of $800 million. Market observers such as Shanghai-based Z-Ben Advisors expected the move to be the start of a trend, with other insurers following suit.
China United Property Insurance Company, the insurance arm of stated-owned China Orient Asset Management Corporation, received approval from the CIRC to invest overseas, according to an announcement by the regulator on March 12. China United has given the mandates to Taikang Asset Management Company, JP Morgan Funds (Asia) and Invesco Hong Kong.
Yang Zheng, China Life vice-president, said: “Overseas exposure is important amid China’s growth slowing down. We find some overseas markets can provide value, so we plan to continuously increase our overseas allocation.”
Last year, China Life followed the industry trend by increasing its allocation to private equity and alternative fixed-income instruments. The insurer allocated 8.28% to alternative fixed-income products, up from 6.76% in 2013. Such assets included infrastructure, real estate-backed products, and non-standard assets such as trust schemes and policy loans.
Among its equity investments, China Life more than trebled (254%) its allocation in what it calls 'other equity investments' to Rmb57.5 billion, up from Rmb16.2 billion in 2013, representing 2.73% of its portfolio. The insurer has given a mandate of Rmb150 billion to China Life Investment (CLI), a wholly-owned subsidiary of China Life group, for domestic alternatives - largely private equity. The mandate started on January 1 this year, as reported.
“We will not hugely reduce our fixed income allocation given our background as a life insurer [because of a need to match liabilities], but we will attempt to invest in alternative fixed income instruments amid China’s rate cutting environment,” said Yang.
“The other [alternative] equity investments allocation is small in terms of its percentage. But we aim to adjust our investment allocation following China’s policies in economic structural changes - for example, investing in emerging industries and the public-private partnership (PPP) projects which have been encouraged by the State Council,” added Yang.
China Life also increased its exposure to domestic A shares in the second half of last year, but Yang stressed that it was a short-term, temporary allocation. “As to whether to further increase such exposure, we need more analysis since it is a very volatile market,” said Yang.