China insurer AMs apply to launch segregated funds

They submit equity, bond and fund of fund requests in a move to compete with mainstream managers. Further, CSRC unveils new guidelines on launching mutual fund businesses.
China insurer AMs apply to launch segregated funds

The asset management arms of three insurance firms have applied to issue a total of five fund products in a relaunched process that will see them start to compete with mainstream managers.

PICC, TaiKang and Taiping have submitted equity, bond and fund of fund requests with the China Insurance Regulatory Commission (CIRC). It is understood these are private funds and so come under CIRC. Public mutual funds are governed by the China Securities Regulatory Commission (CSRC).

The move comes after the CIRC released guidelines on Sunday, February 17 outlining the type of product, investment horizon, investor qualification and approval requirements for insurer AMs to launch collective investment funds.

According to the guidelines, they can issue products to other qualified investors, as well as industry peers. A collective fund should comprise no more than 200 individuals, each with a minimum Rmb1 million investment. The threshold for a single investor in a segregated account is Rmb30 million.

This means insurers can engage in the sort of segregated account and multi-client segregated account business that fund management companies (FMCs) run, notes Lillian Zhu, senior analyst at consultancy Z-Ben Advisors.

A shanghai-based compliance officer at an insurer makes a similar point: “This is about private funds, as the guidelines say the investors should not exceed 200. It is just like the segregated account business FMCs run.”

The products that insurers are permitted to invest in range in exposure from bank deposits, equity, bond, fund of funds, treasuries, asset-backed securities, infrastructure and real estate.

They can partner agencies to promote their products. However, they are not allowed to market them via the internet, television, radio, newspapers and other mass media.

The new rules will enable insurers to expand their business scope. Previously they were only allowed to offer pension products and enterprise annuity business; now they can source money from a range of investors, enabling them to compete on a level playing field with FMCs.

The CIRC announced measures to allow insurance firms to set up their own asset management business back in 2010. However, according to one media report, the regulator launched such a pilot scheme in 2006, with four firms – PICC, Taikang, Huatai Insurance and CPIC – participating. Six products were issued – a money-market fund and five bond funds.

On a separate note, in December Beijing announced revisions to the Investment Funds Law to allow insurers, as well as securities firms and private funds, to launch mutual fund businesses.

And last night the CSRC unveiled new guidelines for them to do so. Firms have to become a member of the Asset Management Association of China. They should have good corporate governance and internal risk controls, a good track record with three consecutive years of profit and not have breached regulations in the past three years. 

The minimum AUM for securities firms and insurers stays at Rmb20 billion. Insurers need net assets of at least Rmb500 million. Private fund organisations should have a minimum of Rmb2 billion in AUM over the past three years and Rmb10 million in capital receipt.

The guidelines are due to come into effect on June 31, the same day as the revised Investment Funds Law.

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