Chinese insurers mull offshore challenges

Mainland insurers are sizing up the issues they face in ramping up foreign asset exposure. Taikang AM tips them to substantially accelerate such investments in three to four years' time.
Chinese insurers mull offshore challenges

It will be a few years before Chinese insurers become very active overseas investors, due to the challenges they face on this front, says Craig Chen, chief investment officer at Taikang Asset Management in Hong Kong.

Mainland players are likely to invest very little offshore initially, but “the curve will change significantly in the third to fourth years”, he said during a panel at AsianInvestor's recent Insurance Investment Summit. And the success of the initial investments over the first couple of years will determine how boldly insurers move after that, he adds.

Taikang AM oversees offshore investment for China fifth largest life insurer, Taikang Life, which had $55 billion in AUM as of end-2012, less than than 0.5% of which is invested overseas. Chen told AsianInvestor last August that he expected to start issuing mandates in 2014.

Several insurers have qualified domestic institutional investor quota, which allows them to invest overseas, but even the most active firm on this front, Ping An, is thought to have less than 2% of its $150 billion portfolio offshore.

One important question is how mainland insurers go about selecting fund managers to manage some of their foreign assets.

Ying White, head of the China fund practice at law firm Clifford Chance and another panelist, asks: “Are insurance companies looking at home-grown Chinese managers who are able to raise US dollars in private equity to safely invest their money, or are they truly open to the Western asset managers?” she asks.

Chen denies that Chinese insurers would favour domestic over foreign players, saying the important factors are “the history, performance and culture of the fund managers”.

Still, unfamiliarity remains a major obstacles for mainland firms investing offshore. “It is very exciting, but on the other hand it is also very challenging, because we are faced with numerous geographic locations, numerous products,” says Chen. “We also lack local knowledge; it is very hard for us to come up systemic way to invest overseas.”

He admits Taikang needs to find talent to build up its capabilities. Hence the firm will first focus on developed market investment, because there is more transparency – more information and research are available.

There are also operational issues in the form of currency risk. Chinese life firms are used to investing in their domestic market, with more than 99% of their total assets currently deployed in domestic fixed income and equities.

One reason for this is that the onshore market provides relatively good returns. “We have very high yield domestic yield for RMB at the moment,” notes Chen, adding that the currency is expected to further appreciate. “So we have to be very careful in [our] investment.”

Taikang has not yet made any investment in hedge funds, he adds, but he sees the asset class as “interesting for the future”.

International fund managers confirm rising interest from mainland insurers in their services. Firms such as BNP Paribas Investment Partners have been providing advice and training to big mainland life insurers in areas such as asset allocation, liability-driven investment, asset-and-liability management and risk management.

Chinese insurance firms have, since October 2012, been allowed to invest up to 15% of their portfolios in over 40 countries across a wide scope of assets. Derivatives are still a grey area, however, as the regulator has not yet clarified whether they are permitted.


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