Alts assets shortage could disappoint Chinese insurers

After a surge in alternative investment products late last year, the investment arms of Chinese insurers could find it harder to source the right assets to feed new issuance.
Alts assets shortage could disappoint Chinese insurers

The rate at which the specialist subsidiaries of Chinese insurance companies can issue alternative investment products could slow in the coming months as quality assets become harder to come by.

If so, it will likely come as something of a disappointment to China's institutional investors, as well their insurer parents, given strong interest in these better-yielding products – be it private equity (equity investment plans) or infrastructure and real estate loans (debt investment plans).

Source: IAMAC

According to data from the Insurance Asset Management Association of China (IAMAC), 105 of these investment plans were registered in the first six months of 2019. In total they were worth Rmb168.15 billion ($23.89 billion), which is 21% more than in the same period of last year.

Insurance asset managers in China are required to register their products with IAMAC.

Further growth is likely in the second half of the year, but it won’t be as dramatic as in 2016 and 2017, Zhu Qian, a senior credit officer at Moody’s Investors Service, told AsianInvestor.

The market's momentum is no longer what it once was, she said.

And it is unlikely to repeat the strong growth seen towards the end of last year either, which came after the State Council announced a directive aimed at boosting the delivery of new infrastructure with a series of policy recommendations in late October, Zhu added.

Product registrations in such products shot up in August, November and, especially, December 2018 with Beijing keen to mobilise insurance savings to help support the faltering Chinese economy. AsianInvestor reported in November on this expected end-of-year revival.

Source: IAMAC (click to enlarge)

Insurer demand for these alternative investment plans has always been strong.

The regulators like them too because they want to encourage investments that support the economy. But they also have higher demand for risk control.


“So demand can’t be met or there is a disconnection,” Zhu said, because it is becoming more difficult to source quality assets to put into these investment plans, making it harder to structure these products in a way that delivers yields attractive enough for investors. 

As a spokeswomen for Ping An Asset Management noted, the issuance of these non-standard investment products mainly depends on the ratings and quality of the underlying assets. 

Zhu Qian

As such, the subsidiary of China's biggest insurer by market value, could give no clear direction for its new product plans over the rest of the year, she said.

More broadly, there could yet be a tweak in the overall alternatives product mix. Until recently, infrastructure debt investment plans have led by product type. But asset owners may increasingly find equity investment plans more appealing.

Institutional interest in private equity is already increasing in China, albeit from a low base, as the industry looks to alternative investments to improve returns and generate some alpha.

Chinese insurers are also looking for ways to feed this hunger, including the buildout of in-house expertise on private equity investments.

In the first half of 2019, Rmb5.2 billion of equity investment plans were registered, compared with none in the same period of last year. This was after the China Insurance Regulatory Commission released new rules designed to stop the asset-management arms of insurance companies from making such 'fake equity, real debt' investments or other similar loan-like equity investments in unlisted corporates.

Investor interest in private equity investments is growing as stock markets turn more volatile. Less clear is whether there are sufficient quality assets that insurance asset managers can package for their clients.

Investors interested in the strategies of China’s asset owners can learn more at AsianInvestor's 6th Institutional Investment Forum China, to be held on September 18 in Beijing. 

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