Ahead of its planned merger with Taiwan Life next year, Taipei-based CTBC Life plans to decrease further its exposure to US fixed income and lift its exposure abroad and to alternative assets, including private equity.

“In our existing portfolio, over 80% [of our international investments] are in fixed income, including government bonds, corporate debt and financial sector bonds. This year, we will further diversify our debt exposure into emerging markets, including sovereigns, and we will also select some corporate debentures,” says CTBC Life CIO Chao Weitzu*.

The firm is most interested in China’s bond market, he adds, which it can only directly access through its $100 million qualified foreign institutional investor (QFII) quota.

As of the end of 2013, CTBC Life had allocated 17% to short-term investments with a maturity of less than one year, such as cash and deposits; 62% to fixed income investments; 14% to equities; 6% to loans; and 1% to domestic real estate.

Chao says the firm aims to lift its overseas exposure from 44% to 48% this year. It will continue to decrease its exposure to US Treasuries, which now stands at 80% after hitting 90% following the acquisition of MetLife in 2011, and re-allocate to Europe, Asia and Latin America.

The insurer is not exposed to PE investment, but it plans to allocate 1-2% to it this year and is conducting due diligence in preparation for doing so.

“We would like to invest in private equity funds in developed markets with shorter investment horizons,” says Chao. “We are insurers; so we have to consider generating stable income to match our liability.”

The insurer is looking for secondary market PE funds with a three-year horizon that will waive the initial investment period.

To manage liabilities, CTBC Life is cautious on investing in equities because of high volatility. Therefore, the firm is turning to overseas markets.

“We invest in European and US ETFs [exchange-traded funds] because of the time-zone difference,” says Chao. Liquidity is an important consideration when making such investments as the insurer uses them to time the market and not as long-term positions, he notes, adding that he expects the firm’s ETF exposure to rise 1% to 2% this year.

The insurer’s AUM reached $8.5 billion as of January 2014, following the acquisition of Manulife Taiwan. Chao says AUM would grow to $25 billion on completion of the Taiwan Life merger, which he expects to be completed next year. CTBC Life was previously MetLife Taiwan Life Insurance, which was renamed in 2011 after it was acquired by the CTBC group.

*See full interview with Chao in the forthcoming May issue of AsianInvestor magazine.