China’s largest life insurer is preparing to issue a fresh round of mandates that could top $8 billion as it strives to increase overseas exposure in part to counter domestic volatility, AsianInvestor understands.
China Life, which has $331 billion in assets under management by AsianInvestor rankings, launched its first round of local and global mandates late last year, allocating $4.02 billion in total. Of this sum, $800 million was overseas and $3.22 billion was domestic.
But it is understood the firm is now in discussions to issue mandates that could be more than double the size, meaning at least $8.04 billion. This is understood to include $1.6 billion in overseas mandates across three years.
Speaking after the announcement of interim results this June, China Life vice-president, Yang Zheng, revealed the firm had less than 2% of total assets [i.e. less than $6.6 billion] in exposure to overseas assets in its investment portfolio.
“It is not enough for a life insurer’s long-term stable return,” he stated. “In the coming few years we will boost overseas allocations based on the principle of active and stable strategy.”
Nevertheless, this latest move would represent a major expansion. China Life's overseas assets currently consist mostly of property, combined with equity and bond investments listed in Hong Kong and Singapore via its Hong Kong joint venture with Franklin Templeton.
It issued its first batch of overseas mandates – for a total of $800 million – by request for proposal (RFP) this January.
As at the end of June, China Life had issued a total of 23 domestic RMB mandates, all of which are due to expire before the end of 2017.
As a top-tier insurer, it is broadly expected that China Life's external allocation, particularly overseas, will be replicated to some degree by large peers as well as mid-tier firms.
Shanghai-based consultancy Z-Ben Advisors observed that mainland insurers were facing fresh pressure to invest into international markets on account of equity market volatility at home, combined with RMB devaluation and a regulatory drive to encourage portfolio stability – and therefore diversification.
Since peaking at 4,558 points on June 8 this year, the CSI index has plunged 25.4% to September 9. Further, after the central bank moved to devalue the RMB on August 11, the currency has depreciated 2.8% against the dollar.
When approached by AsianInvestor, a manager at China Life, who preferred to remain anonymous, said this move should not be seen as a second round of mandates. “Our approach is different [this time]. We keep discussing new investment mandates with global managers,” he said.
One industry source suggested the new mandates would have a heavy focus on developed market equities, which is an area where Chinese insurers are underexposed in general.
The China Life manager confirmed only it would be seeking a range of overseas assets in its new mandates, depending on market conditions and opportunities. He declined to confirm the timing or total amount under consideration, pointing to global market volatility as a destabilising factor.
China Life saw its investment portfolio grow 5.4% in the first six months of this year to Rmb2.2 trillion ($348 billion), from Rmb2.1 trillion at the end of 2014. Its investment portfolio generated an annualised 9.06% return, according to its interim report.
In March, the Beijing-based insurer told AsianInvestor it was studying whether to issue more overseas mandates, but could not confirm if they would be completed this year, as reported.
China Life became the first Chinese insurer to issue overseas mandates by RFP invitation earlier this year. It issued three global equities mandates and five multi-asset mandates worth a total of $800 million in January, as reported.
It also issued 15 mandates worth Rmb20 billion to onshore fund companies and brokerages in January.