China Pacific Life Insurance (CPIC Life) is evaluating overseas fund managers for its first-ever overseas multi-asset mandates, as the life insurer seeks to expand its business in Hong Kong.

A total of 15 fund managers with bases in Hong Kong are taking part in a beauty parade that will see three mandates handed out before year-end, a senior executive at CPIC Life who is familiar with the plans, told AsianInvestor. 

The move is part of its strategy to secure an operating license in Hong Kong, since providing a list of external managers is a regulatory requirement in the city.

“CPIC Life will definitely open a subsidiary in Hong Kong, so we need to be prepared for the investments of the subsidiary,” said the senior executive. 

HK$1 billion ($128 million) will initially be farmed out for the three mandates, but that amount is likely to increase as the new unit draws in more premium income. The company plans to give out more mandates next year, he said.

The HK$1 billion (Rmb845 million) allocated this time is tiny compared with the roughly Rmb50 billion (some 5.5% of its overall portfolio) that it has outsourced to third-party managers.

The life insurer has about Rmb900 billion of investable assets and the return on its overall portfolio is about 5.3% year-to-date, according to the executive. The investment book is the third-largest among listed Chinese insurers, after China Life Insurance and Ping An Life Insurance.

Multi-asset focus

The products that the Hong Kong subsidiary is going to sell are likely to be those that give policyholders the greatest possible protection on their principal and offer stable returns. Multi-asset strategies can be best employed to match the liabilities, noted the senior executive.

Multi-asset strategies give investors exposure to asset classes across the spectrum, from bonds to equities, but cash and money-market instruments too.

“The potential for them to include money-market securities is important, because a fund manager using a multi-asset approach can have a reasonably large amount of money invested in money-market instruments,” a senior custody and settlement advisor who declined to be named told AsianInvestor. 

Money market instruments are fixed-income securities with short-term maturities of a year or less and are used by investors and corporates to finance their short-term cash requirements. The high liquidity can help the liability-driven institutional investor offer stable returns to its policyholders.

“What they are doing is buying the fund manager’s abilities to forecast markets and move assets between the three major market sectors [equities, bonds, money market securities], and some multi-asset funds also use alternatives or derivatives,” he said.

The beauty parade

There are basically three rounds for the selection. The aim of the first round is for CPIC to examine whether the investment managers fulfill the requirements of the China Insurance Regulatory Commission in such areas as investment experience and assets under management and to conduct due diligence on the candidates.

“We are going to set up a unit in Hong Kong. We’ll see if it [the candidate] has enough scale and capability in Hong Kong besides [its presence] globally,” said the CPIC senior executive.

In the second round, CPIC Life will look for investment managers who are strong in multi-asset strategies and their past performances. The candidate’s investment philosophy, risk control system, compliance system, investment team stability and management fee levels will then be considered in the last round. 

“Although past performance does not represent future performance and the market is ever-changing, the investment philosophy and behaviour, and trading system will not change. If these things are relatively stable, theoretically speaking historical profits [will] prove [a predictor for] future ones,” he said.

The selection process is currently in the second round.

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