China Life global mandates tipped to trigger wave

The mainland's largest life insurer has outsourced a series of global equity and multi-asset mandates to international managers, blazing a trail that industry peers are forecast to follow.
China Life global mandates tipped to trigger wave

A landmark move by China Life to issue a series of overseas mandates is tipped to trigger a wave of global industry allocations running into hundreds of billions, spelling good news for international managers.

The Beijing-based life insurer, a national standard-bearer with Rmb1.99 trillion ($318 billion) in assets under management, recently issued two batches of mandates, one for global equities and the other for multi-asset.

The overall amount was understood to be $800 million, although China Life declined to confirm this. Public information is scant, but well-placed sources say these were three-year mandates awarded in December and implemented last month.

Three global equities mandates were handed to American Century Investments, Franklin Templeton and BlackRock (passive investments), and five multi-asset mandates awarded to JP Morgan Asset Management, Schroder Investment Management, Goldman Sachs Asset Management, State Street Global Advisors and Neuberger Berman.

Sources say that the mandated fund houses will be required to have an onshore presence to provide services beyond that which a representative office can do.

While this is not the first overseas mandate China Life has issued, it is the first time it has done so through requests for proposal, noted Ivan Shi, senior manager at Shanghai-based consultancy Z-Ben Advisors.

“Large and small [insurance] players are expected to follow suit,” said Shi, predicting that Ping An, China Pacific Insurance and Taikang Life would be next.

Shi expects the issuance of international mandates by Chinese insurers to gather speed in the second half of this year, with other domestic institutions to follow in 2016.

Z-Ben has forecast that overseas mandates issued by Chinese insurers will hit $275 billion by 2020, to represent 25% of all institutional mandates from the country. As at the end of last year Chinese insurers represented just 2% of Chinese institutional mandates.

Shi added it was to be expected that China Life would issue global equities and multi-asset mandates, given its large exposure to domestic fixed income. The firm had 48% of its portfolio in fixed income and 35% in bank deposits as of last June, according to financial reports.

“The regulator [China Insurance Regulatory Commission] would have encouraged Chinese insurers to raise its exposure to equities and multi-asset in order to improve its investment returns and alter its asset allocation,” noted Shi.

One Hong Kong-based manager familiar with the mandates added: “Chinese insurers are interested in multi-asset exposure by the nature of their stable income and greater downside protection.”

Last November Yang Zheng, China Life vice-president, had referred to the company’s overseas allocation plan, pointing out it would include private equity and property exposure.

Last October, China Life announced it had handed a one-year, Rmb150 billion mandate to its alternative investment platform China Life Investment, which focuses on domestic private equity and real estate.

The move highlighted a drive among big Chinese insurers to add alternatives as well as offshore exposures amid the need for asset class diversification and the hunt for yield.

Chinese insurers saw their total assets grow 22.6% year-on-year in 2014 to reach Rmb10.2 trillion, according to the CIRC.

Across all their portfolios, a total of 27% was allocated to bank savings, 38% to bonds, 11% to equities and securities investment funds and 24% to alternatives, including property, private equity and non-standard products such as wealth management and trust products.

In all, Chinese insurers allocated just $24 billion into overseas assets last year, representing a meagre 1.48% of their total assets as at the end of 2014. By geography, Hong Kong dollar denominated assets represented 64% of their overseas assets.

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