China Life Franklin Asset Management (CLF AM) in Hong Kong is increasingly focusing on managing segregated accounts for high-net-worth and institutional clients via its in-house sales team.

Its third-party business has risen almost 20-fold to nearly HK$10 billion ($1.25 billion) from HK$500 million this year. The firm is a joint venture of China Life Asset Management and US-based Franklin Templeton Investments and has HK$105 billion in AUM.

There are two main reasons for its strategy focus. For one thing, CLF AM – which manages offshore investments for its parent, China Life, the biggest mainland insurer – does not feel that launching retail products using its RQFII quota would give it an edge over its rivals.

And while CLF AM is seeing AUM inflows due to the growth of its parent's Hong Kong business, chief executive Chen Dong does not expect China Life to award it with mandates for other overseas investments, such as into European or US assets.

The insurer's move into overseas investments will be gradual process of small increments and in any case it will only hand Hong Kong equity mandates to CLF AM, he acknowledged.

When it comes to Europe and US equities, Chen added, China Life is likely to follow the lead of big state investors like China Investment Corporation (CIC) and the National Social Security Fund in using managers with more experience in those markets.

Meanwhile, introducing retail mutual funds under the renminbi qualified foreign institutional investor (RQFII) and QFII schemes would not be a good model for the firm, argued Chen.

China Life Franklin has RQFII quota of Rmb6.5 billion ($1.06 billion) and QFII quota of $100 million, which it mostly allocates to mandates for HNW and institutional clients. It also launched its first multi-asset mutual fund in July, which mainly invests in overseas high-yield and emerging-market bonds.

China Life has not unveiled its overseas allocations, but its financial reports provide a hint of its overseas exposure, which is mainly in Hong Kong and Singapore. It has Rmb2.9 billion in Hong Kong equities and Rmb286 million in fixed income in Singapore. Yet these assets account for less than 1% of its Rmb1.99 trillion in AUM. 

That is in line with the market. Chinese insurers’ total overseas assets rose 10% to Rmb93.5 billion this year to the end of September, but still represent only about 1% to their total AUM of Rmb9.5 trillion, according to the China Insurance Regulatory Commission.

The biggest challenge for mainland insurers in allocating offshore is not selecting mandates, but making the right calls on global trends and asset allocations, an area where they are still lack experience and capabilities, said Chen.

Most of Chinese insurers' overseas allocations are in Hong Kong equities and real estate. They are not likely to invest in overseas fixed income, added Chen, since global bond yields are low and they are only allowed to invest in debt rated BBB, which is only offering annual returns of around 5%.

As for alternative assets, they tend to look for such exposure onshore, as reported. Many Chinese insurers consider overseas alternative investments too complex an asset class, noted Chen.