China Life targets Belt and Road investments

The largest life insurer in the mainland is seeking Belt and Road-related investments to help raise its foreign allocation, and has set up a new private equity fund with Baidu.
China Life targets Belt and Road investments

China Life is looking for Belt and Road-related investments to help raise its offshore asset allocation, and has established a Rmb14 billion technology-focused private equity fund with mainland internet giant Baidu, its chief financial officer revealed.

Speaking at the company's first half results presentation in Hong Kong on Friday, Zhao Lijun, vice president and chief financial officer (CFO), said it still intends to raise foreign asset investments to the 15% target it originally pinpointed in August last year.

At the end of the first half China Life’s foreign investments rose to $11.6 billion, or 2.9% of its overall portfolio of $382 billion. This was a small increase on its 2.43% position at the end of 2016, and included short-term deposits, Hong Kong stocks, global stocks, multi-assets, private equities and real estate. 

Zhao said the speed with which the mainland's largest insurer can keep raising foreign investments will largely depend on how quickly it can obtain approval for offshore investments through Beijing’s onerous foreign currency and capital controls.

To help meet its goals, China Life will focus some of its foreign investments on Belt and Road projects. The mainland’s insurance watchdog, the China Insurance Regulatory Commission, "has been encouraging insurers to invest into them, and they will get fast-track approval and support from the foreign exchange authority," Zhao said, without offering more details of its plans.

The Research Institute of Finance under Development Research Center of China's State Council, has estimated the infrastructure financing needs of countries along the Belt and Road route (excluding China) to be $1.4 trillion between 2016 and 2020.

China Life's interest in participating follows that of several other mainland asset owners. China Investment Corporation, the country's $814 billion sovereign wealth fund, has allocated $10 billion to belt-and-road-related projects, a CIC spokesperson told AsianInvestor.

In addition, Wang Zhongmin, a vice-chairman of the National Council for Social Security Fund (NCSSF), said in May the pension fund has lined up a pipeline of deals relating to the plan. And Reuters reported on August 22 that China's leading four state-owned banks are raising billions of dollars for belt-and-road projects.

PE focus

China Life has also been more aggressive on the private equity and direct investing front. Zhao noted the insurer made two additional investments in the first half with total investment of Rmb30 billion. Most notably, it has set up a Rmb14 billion private equity fund with Baidu to invest in “new economy” companies such as in the internet, internet finance, artificial intelligence and consumption upgrading sectors.

China Life will allocate Rmb5.6 billion to the fund, while Baidu will inject Rmb1.4 billion, Zhao said.

The fund is expected to run for 10 years, making investments over the first six years and exiting over the last four. Its purpose is to generate financial returns, and is ‘a very rare and precious opportunity that we can cooperate with internet giant in the investment side,” Zhao said. “It is also a trial for our investment in new-economy opportunities in the future.”

Meanwhile, China Life plans to buy Rmb21.7 billion shares of China Unicom, amid government’s push to draw private capital into the state-owned enterprises. Other buyers of the share sale by China Unicom include Alibaba, Tencent and Baidu. 

China Unicom's Hong Kong shares trade had risen 28.68% year to date by August 25, to HK$11.62 per share, while its Shanghai-listed shares rose 14.79% to Rmb8.38 per share.

On the foreign investing front, Zhao said China Life has invested about $1.5 billion of its foreign asset investments into public markets via 13 fund managers, and it earmarked another $1 billion for global private equity investments. The insurer partners with six private equity firms and has deployed $470 million in investments so far.

"Our foreign investments have achieved very good performances, and the mandated portfolios delivered higher returns than traditional public market investments,” he noted.

Rising returns

Zhao reported that China Life recorded a slight year-on-year increase on its investment returns during the first half of the year.

The company's gross investment returns improved to 4.62% versus 4.38% a year ago, courtesy of a a timely allocation to A-shares and Hong Kong stocks and domestic debt assets, he said. Its investable assets expanded 5.8% to Rmb2.6 trillion ($382 billion).

The insurer also allocated Rmb20 billion into Hong Kong stocks in the first half via the Stock Connect scheme. Stock Connect trades are conducted in renminbi so are not affected by China’s capital controls. Ping An Insurance, the second largest mainland insurer, has also increased its Hong Kong stock investments.

In addition, China Life expanded its allocation to debt-type financial products by 4.01%, and increased its equity portfolio by 2.03%.

The debt-type financial product include alternative assets such as debt investment plans, equity investment plans, trust schemes, wealth management products, project asset-backed plans and specialised asset management plans.

Zhao said China Life raised its local debt investments because interest rates in mainland China have been rising since the end of last year. The one-year Shanghai Interbank Offered Rate (Shibor) increased 30% to 4.4068% on August 25, from 3.3833% on January 3. The company expects rates to fall in the future, so it boosted its fixed income allocations to benefit from this, Zhao said.

Meanwhile A-shares market performed stably in the first half, and China Life bought an additional Rmb20 billion in mainland stocks, focusing on value shares.

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