China Life is becoming increasingly bullish on healthcare investments now that Hong Kong’s new listing rules have made it easier for up-and-coming biotechnology firms to list on the stock exchange, according to a senior executive at the biggest mainland insurer.

This suggests that China Life’s private equity unit will add to the three investments its healthcare fund – to which the insurer has committed Rmb50 billion ($7.82 billion) – has already made into biotech.

Hong Kong’s new listing regime is a tailwind for private equity (PE) investors as it offers an easier exit channel, Zhang Leidi (pictured left), managing director at China Life Private Equity Investment Company (PEIC), told AsianInvestor.

“[Biotech] Companies could go public much earlier than before, leaving limited time for late-stage investors to come on-board],” she noted.

She declined to provide any details on whether the private equity fund would increase allocations to biotech as a result of the new listing rules, but said she is more upbeat about investing in biotech companies.

Under the new initial public offering (IPO) regime, a biotech company that does not meet certain financial eligibility tests can list on the Hong Kong exchange as long as its market capitalisation is at least HK$1.5 billion ($191 million).

This means companies in the early stages of funding – for instance, after they have received Series B funding (past the early development stage and aiming to expand market reach) – could go public, she said.

However, this doesn’t mean China Life will be rushing to exit its biotech – or other – investments via the IPO route any time soon, added Zhang. The group has a disciplined and long-term approach to investing, she noted, so it will look at all exit strategies, including trade sales, before making a decision.

China Life PEIC is a wholly-owned subsidiary of China Life Investment Holding, the alternative investment platform of China Life, which had Rmb2.6 trillion ($407 billion) of investable assets as of end-2017. 

The PE company’s healthcare fund has a capital commitment of Rmb 50 billion from China Life. Since inception in November 2016, the fund has received Rmb12 billion in approved capital, said Zhang, of which Rmb 5 billion has been spent on 12 investments, of which three are in biotech firms.

So far, the fund has not exited any investments, or made a profit, she said, declining to state its return target.

China Life’s PE unit only manages money internally for the insurer at present, but “when the time is right” will open its fund to external investors, including overseas allocators, who are interested in the Chinese equity market, Zhang said.

DELEVERAGING DRIVE

Private investments into the healthcare sector have been rising steadily in China. Healthcare-focused venture capital and PE funds raised $20 billion in 2016, compared with $1.2 billion in 2012, according to a McKinsey report published in November 2017. Fundraising activity is expected to total nearly $30 billion in 2017, the report said.

But that trend may moderate this year amid China’s ongoing deleveraging drive, predicted Zhang. China-based VC and PE firms are raising less capital than in previous years, she said. Still, institutions with plenty of investable capital, such as China Life, will be able to continue hunting for suitable opportunities, she added.

Indeed, healthcare companies are becoming increasingly active in seeking funding, even as investment firms are facing increasing challenges in raising money, Zhang said. The situation is likely to persist into the second half of this year, which could cool some of the hyped-up valuations in the market, she added.

China’s healthcare industry is developing quickly, with a compound annual growth rate of 17% over the past five years, compared to 4% in the US and a decline of 2% in Japan, Zhang said, citing numbers from the World Health Organization.

China’s total expenditure on healthcare (public and private) is expected to almost double to $1.1 trillion by 2020 from $640 billion in 2015 on the back of rising per-capita income and a rapidly aging population, according to the 2016 Top Markets Report Pharmaceuticals.

TRACKING TECH

Judging by China Life PEIC’s portfolio companies, the fund has been investing in a range of non-traditional healthcare-related companies. One portfolio investment is Wuxi AppTec, which builds technology platforms for healthcare companies. It raised Rmb 2.1 billion in a Shanghai IPO in May. 

Other bets include Chinese companies such as medical equipment maker Mindray, medical imaging systems provider United Imaging Healthcare and biopharmaceutical company Innovent Biologics. 

Zhang said the fund has three key considerations when selecting investment targets: technological innovation, niche market expertise, and potential synergies with China Life's main business operations.

“One of our top criteria is: does the company own any core technology related to the broader industry or to a niche healthcare segment?” she noted.

The healthcare PE fund has invested in a tech company that processes insurance claims under the ‘business synergy’ criterion; the firm eventually became a business partner of China Life, Zhang added. 

China Life’s peers have made similar moves. Ping An group, whose life insurance unit is China’s second-biggest by investable assets, has a health technology subsidiary that offers online medical consultations through mobile platforms. It raised HK$8.56 billion in an IPO in Hong Kong in March.