Ping An, China's second-largest insurer, intends to raise its exposure to domestic real assets to both tap a government initiative to build infrastructure and take advantage of such investments’ long duration for better asset-liability management.

“We will be looking at newer types of real estate and infrastructure assets. Healthcare and public rental housing assets ... are some of the areas the government is currently focused on developing. We will also be gradually increasing our exposure to these assets,” Timothy Chan, Ping An Insurance's chief investment officer, said in response to AsianInvestor questions during its interim-result webcast on Friday (August 28).

Timothy Chan,
Ping An Insurance

He did not elaborate on the firm's target or current allocation to real assets, but infrastructure and real estate combined make up about 53% of its exposure to non-standard loans. Debt schemes and wealth management products include non-standard loans.

Overall, Ping An’s Rmb3.4 trillion ($501.7 billion) investment portfolio had an 11.4% allocation to non-standard debt, down from the end of December’s 13.4% (see table below).

“In addition, as the government calls for more modern infrastructure, urban development, transportation and water facility construction, these projects provide us with the opportunities including railway and PPP [public–private partnership] expressway assets,” said Chan. “We will be considering participating in these projects.”

In May’s Two Sessions, the annual meetings of the Chinese People’s Political Consultative Conference, prime minister Li Keqiang called for the construction of new and modern infrastructure, such as 5G networks. The initiatives came after China’s economy shrank for the first time in decades in the first quarter this year.

The plan to boost real asset investment is also driven by the firm’s underlying goal to match its asset and liability duration, and identify stable-yielding assets. Chan said the firm had an asset-liability gap of 4.3 years, down from over eight years six years ago.

Overall, real assets will aid the lifer’s asset-liability management as they typically come with higher yields and longer duration, said Zhu Qian, a senior credit officer of financial institutions at Moody’s.

However, she added that some infrastructure investments would lead to higher concentration risk, given that these projects generally require a bigger initial committed amount.

“In terms of credit risk, investing in real estate and infrastructure projects comes with liquidity risk, not to mention the cyclical risk associated with the real estate sector,” Zhu added.

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HIGHER BOND ALLOCATIONS

Similar to state-owned peer China Life Insurance, Ping An had taken a defensive portfolio stance over the past six months as both insurers faced the economic impact brought forward by the coronavirus outbreak.

But instead of raising cash and related holdings, the firm increased its allocations to bond investments by 2.3 percentage points to stand at 49.2% as of the end of June. (See table above)

Chan did not elaborate on the split between government bonds and corporate bonds, or the proportion of these bonds in the fixed income portfolio.

While he outlined his plan to focus on low-valuation, high-dividend stocks in February in the company’s 2019 results announcement, the investment portfolio saw a 90 basis point (bp) decline in stocks to 8.3% as of the end of June, albeit the allocations to equity funds was up by 50bp at 2%.

However, Chan said he will continue to adhere to the strategy despite potential market volatility.

Ping An posted an annualised net investment yield of 4.1% in the first half of the year, down 40bp year-on-year.