China Life has signed an investment partnership with Manulife Asset Management that underscores mainland insurers' hunger for foreign private-market assets and expertise, and looks likely to herald more such deals.
It is the first such tie-up that China's biggest life insurer, with Rmb2.45 trillion ($353 billion) under management, has signed with a global financial institution. And the Beijing-based group has hinted that others could follow.
Under the memorandum of understanding (MoU), Manulife AM will help China Life invest its general account assets overseas. Meanwhile, the Canadian firm will be able to tap the insurer's expertise and resources with a view to making investments on the mainland.
Real asset appetite
Michael Dommermuth, Asia head of wealth and asset management at Manulife Financial, said the partnership covered all Manulife AM's capabilities. “But I would imagine that our private asset capabilities will be of particular interest [to China Life]," he told AsianInvestor.
He was referring in particular to Manulife AM's experience in managing real assets. The firm has $81 billion invested in private markets globally – nearly one quarter of its $358 billion under management – and is one of the world's biggest owners of farmland and timber land.
This chimes with China Life's own recent comments and actions.
The insurer said in March it planned to continue raising its alternative and foreign allocations and to hand more mandates to external fund managers. Its offshore exposure stood at $8.6 billion, or 2.43%, at end-2016, up from 2% on June 30. It said in August it would raise the allocation ultimately to 15%, the current upper limit.
Of the $8.6 billion in offshore assets, $1.3 billion were in public-market mandates and the rest in direct property investment and private equity funds, including co-investments.
China Life said in a statement in Chinese on May 16 that the agreement with Manulife was an important step in implementing the strategy advocated by chairman Yang Mingsheng that it would partner overseas institutions to explore foreign investments. The MoU signals China Life has taken a new step in its global asset allocation, the firm noted.
The insurer added that it would learn from well-known foreign financial institutions about their know-how and experience in financial markets, financial instruments, risk profiles and risk management.
And it is not alone. Chinese insurance companies across the board are moving to boost their foreign exposure, with the second biggest by AUM – Ping An – perhaps the most active on this front. Indeed, Ping An struck its own partnership in November with Australian fund manager QIC with a view to investing more in offshore alternative assets.
Asked whether the MoU would mean China Life would receive preferential fees from Manulife AM, Dommermuth was non-committal: “It's not so much about that. The main motivation is that they recognise and have a desire to create a global allocation within their general account. [A partnership like this] gives them confidence to access those overseas asset classes.”
Moreover, the MoU will likely mean that China Life gets an early look at certain private deals. “When we have co-investment opportunities, we would automatically reach out to our partners,” said Dommermuth. “They are already reaching out to us on deal flow that we're showing them."
In turn, Manulife AM plans to tap China Life's knowledge to make investments in mainland public and private markets. The Canadian firm is particularly interested in the country's infrastructure assets for their steady income, noted Dommermuth.
The vast bulk of Manulife's mainland assets are in the public markets, said Dommermuth, but it plans to substantially ramp up onshore private market investments. He declined to put a figure on the kind of capital it would commit.
Asked which other mainland insurers Manulife AM looked at partnering with or whether it had other MoUs planned, Dommermuth said: “We saw the greatest partnership opportunities with China Life and we're very happy with the agreement; this will be our key focus.”
The MoU builds on Manulife's already well-established presence in China.
The group has $21 billion of assets under management in China, comprising funds raised from and invested into the domestic market. This incorporates five businesses: Manulife Asset Management Hong Kong, its regional investment headquarters for Asia; Manulife Teda Fund Management, an onshore joint venture of which Manulife owns 49%; the Manulife-Sinochem Life Insurance JV; the group's wholly foreign-owned entity, for which it received a licence in March; and Manulife AM's nascent China pensions business.
In respect of the latter, Manulife is in talks with two large mainland banks about distributing retirement products as it waits for the country's Public Pension Fund (PPF) reforms, said Dommermuth. It has been looking for a distribution partner for some months, but was not among the first batch of managers chosen for the PPF scheme in December.
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This article was updated to reflect the accurate amount of assets under management Manulife has invested into private markets globally.