Last week’s move by Australia’s AMP to buy 19.9% of China Life Pension Company may herald other similar deals and reflects how the Chinese retirement market is heating up, noted Stuart Leckie, chairman of Stirling Finance, a Hong Kong-based pensions and investments advisory firm.
The acquisition, for a total of A$240 million, makes AMP the first foreign company in the world to buy a stake in a Chinese pension firm with three licences allowing end-to-end services throughout the mainland.
“Many other life companies would have loved to have done this deal,” said Leckie, adding that the price paid looks reasonable given the business opportunities it provides for AMP. There has been some discussion among other companies looking at potential acquisitions in China, he noted, declining to name names.
“It’s a very good deal for AMP,” noted Leckie. “Plus China Life will be getting a lot of knowledge transfer from an institution that is a sophisticated superannuation provider in Australia.”
AMP will provide technical support to China Life Pension Company (CLPC) and will nominate two directors to the 11-member board of the pension company.
The AMP deal also reflects how the pension segment in China is heating up, on both the private and state side, noted Leckie. As in other areas of the mainland financial markets, reforms are accelerating, he said, citing as an example the fact that since last year insurers have been able to enter the mutual funds business.
The acquisition gives AMP a strategic foothold in the fast-growing enterprise annuity (EA) segment of China’s pension market, noted Craig Meller, AMP chief executive.
CLPC was founded in 2006 to provide EA products to state-owned and private enterprises and is one of only five pension insurance companies in China. It has around 850 employees and is majority-owned by China Life Insurance, China’s largest listed life insurance group, with $325 billion in assets under management.
Moreover, the number of members of EA plans in China already exceeds that in the Australian employer sponsored superannuation sector. Growth in this market has been around 26% annually over the past five years. And it is expected to be aided by a significant ageing of China’s population, with the 65+ age group anticipated to double over the next 15 years, as over 100 million people enter this age bracket.
However, the environment is “sub-optimal” for EA plans in China right now, said Leckie, and there should be a relaxation of the investment treatment of EAs and eventually more tax relief for them.
As for a likely time frame for such reforms, he said: “That’s the difficult part. Quite often we know the direction of reforms in China, but determining the timing is much harder.”
AMP has a long track record in China, having operated there since 1997, and has had a formal relationship with China Life since 2005. In August 2009, the two firms signed a memorandum of understanding for strategic cooperation.
And the latest acquisition follows the setup of an investment joint venture by AMP Capital and China Life Asset Management in September last year. AMP Capital holds a 15% stake in the JV, China Life AMP Asset Management.
Leckie suggested the latest deal will have raised questions about the JV. “It will be fine – China Life will have spoken to the various regulators about the deal,” he said. “We’ll have to wait and see how AMP's acquisitions pan out.”