China Pacific Life Insurance (CPIC Life) is planning to ramp up its private equity investments by strengthening both its in-house capabilities and collaborating more with external managers.
The move is in line with regulator calls for insurers to increase their allocations to the asset class to support economic growth.
“We’re going to raise private equity investment in the alternatives space,” Benjamin Deng, group chief investment officer of CPIC, told AsianInvestor in an interview. “We already have a good track record of private equity investments. This will be further enhanced this year in 2019.”
“Many promising companies in China are still growing and not listed yet. We’re not angel capital nor venture capital; we invest in companies in their later stage of development,” he added.
As a proportion of CPIC Life’s overall investment portfolio of about Rmb1 trillion ($147.8 billion), private equity investments currently account for a "low-single digit" percentage, Deng said. The aim is to raise it gradually to a "near mid-single digit".
Terrence Wong, a director of insurance ratings at Fitch Ratings, has previously argued that the relaxation of private equity investment rules for insurers in China would likely have limited effect because insurer allocations to 'other investments', including private equity, are already high at about 40%.
But, as Deng put it, when you have a Rmb1 trillion investment portfolio, even a one-percentage-point increase is significant.
“We’ll make direct [private equity] investments as well as work with external managers. We hope to strengthen the investment by finding more investment targets, further enhancing post-investment management and exiting strategies, and working more closely with professional [private equity] managers,” he said.
To help with direct investments, CPIC's management capabilities – the knowledge and experience of its investment staff – will have to be improved, as well as the size of the team and completeness of its private equity investment platform, Deng said.
In China, the private equity market is very well developed and there are many outstanding funds in this field that CPIC Life could yet join as a limited partner, he added.
The Chinese authorities have been urging insurers to invest more in private equity to support the real economy as growth slows amid the continuing US-China trade war.
In its latest move on January 29, the China Banking and Insurance Regulatory Commission (CBIRC) simplified the registration process for equity investment plans and private equity funds issued by insurers' asset-management arms with immediate effect.
Chinese insurers invest heavily in such products. So a more efficient registration process could yet increase their supply and give insurers more choice in their asset allocation.
It would also enable insurers to ramp up their private equity investments and provide more long-term capital to the real economy, so the authorities hope.
In a consultation paper in November, the CBIRC said it wanted to allow insurers to invest in the equity of private companies across most industries except for those on a "negative list".
It also planned to lower the risk charge for private equity investments in industries supported by the government, as well as for infrastructure projects and debt-for-equity swaps, and to lift the cap for insurers investing into a single private equity fund to 30% of the fund from 20%.
It remains to be seen whether these proposed changes are implemented too.
For further insight and analysis into how insurers are seeking to invest and navigate regulatory changes, look out for AsianInvestor's 6th Insurance Investment Forum in Hong Kong on March 12 and its inaugural sister event in Singapore on March 14. For more information, please click here.