China’s Fosun Group is open to handing out mandates on behalf of its insurance subsidiaries under certain conditions even as its continues to build its in-house investment capabilities, a senior executive from the group has said.
The Shanghai-based conglomerate owns, partly or wholly, six insurers* across China, Hong Kong, Europe and the US, which between them hold Rmb126.38 billion ($18.5 billion) in investable assets as of June 2018.
Kang Lan, chairwoman of Fosun Insurance, told AsianInvestor that outsourcing to third-parties is possible if the gap in investment performance between managing in-house and outsourcing is negligible.
“It depends on the asset class. For example, in the case of investment-grade bonds, the management fee is not particularly high. It doesn’t make much of a difference whether the asset is managed by us or third parties, so we are fine to hand over management to others,” she said on the sidelines of Fosun International's half-year results press conference in Hong Kong on Wednesday (August 29).
However, the group is more likely to manage specialised or sophisticated investments in-house since it has the required expertise in most cases, she added.
“Assets such as non-listed equity investments, high-yield bonds, alternative investments, real estate investments – these are all areas in which we are very strong and the impact [of our expertise] on investment yield will be bigger. We would be more likely to manage these ourselves.”
Nevertheless, Kang noted the need for external management in some niche investment areas.
“No matter if it’s Hong Kong, Europe or North America, while we keep building our own asset management teams, we will use third-party [managers] when our own abilities [in one area] are weaker,” she said.
“This third-party manager will have more specific investment capabilities. For example, if we want to do direct lending in Europe, we may find some outside teams with the specialised skills to handle that,” she explained.
However, Kang declined to provide any details on whether any new mandates will be announced. She also did not state how much of the overall insurance portfolio was outsourced and how much is managed internally.
Founded in 1992, Fosun Group is one of China’s leading investment groups, boasting total assets of more than Rmb560 billion as of June 30.
It has two main business segments -- one is integrated finance, which includes insurance, investment, wealth management and internet finance; and the other is industrial operations, which has businesses in industries that range from health to property development.
As can be seen from the chart below, fixed income investments in the total investment portfolio of Fosun's insurance business dropped to 67.4% at the end of June from 74.9% at the end of December 2017, while cash and cash equivalents rose to 12.5% from 6.1% over the same period.
The investment portfolio of Fosun's insurance business has typically retained a small amount in cash. The relatively large positions in cash being currently held would not last for long, Kang said.
She attributed the large cash holding to the business receiving new money from policy holders recently, which hadn't been deployed into investments as yet.
Speaking on the outlook for the business, Kang said the biggest risks to the investment portfolio (of the global insurance business) are interest rate changes and emerging market weakness.
While US interest rates are on a rising trajectory, interest rates in Europe remain near-zero levels, which is unfavourable for investments, she said.
One reason for that is because Fosun Insurance owns 85% of Fidelidade, the largest insurer in Portugal, and needs to match to euro-denominated liabilities. Fidelidade had investable assets of Rmb117.67 billion at the end of June, which make up around 80% of the overall investment portfolio of Fosun’s insurance business.
While Fosun is eyeing fixed-income investments offering relatively higher returns, Kang said it is also keen to avoid any geographical risks and is therefore careful about investing in volatile markets such as Turkey and Brazil, she added.
The Turkish lira has plummeted in recent weeks, prompting investors to fret about the potential spill-over into other emerging market economies.
*As of June 2018, Fosun Group owns 84.98% in Fidelidade, 100% in AmeriTrust, 86.9% in Peak Reinsurance, 50% in Pramerica Fosun, 40.86% in Yong’an P&C Insurance, and 20% in Fosun United Health Insurance.
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