Ping An Insurance's overseas division is likely to shift its investment plans, lower a dominant private assets investment approach at the same time as it ramps up its overall size, according to co-chief investment officer Hoi Tung.
At present, more than 60% of Ping An Insurance Overseas’ Holdings AUM is invested in global private equity, infrastructure, real estate and private credit – the four core assets that it classes as alternatives. Equity and bond investments are mainly securities listed in Hong Kong.
Tung said this blend may be tweaked over time, potentially bringing alternatives down to 50% of the entire portfolio, with 50% to be sourced from the Chinese insurer's general account assets and 50% from third-party capital. About 15% is currently managed for external clients.
The shift is part of an ambitious plan by Ping An to upscale its overseas division from a little under $20 billion in assets under management today to $100 billion in the next few years. That might sound ambitious, but it matches the sheer growth and scale of Ping An itself.
Back in 2016 Ping An boasted that its life business had surpassed Rmb300 billion ($43.8 billion) in written premiums; by the end of 2018 that had almost doubled to Rmb548.5 billion. The group’s total liabilities are Rmb6.5 trillion, up almost 10% year-on-year. Assets sit at Rmb7.1 trillion.
Ping An’s desire to expand overseas reflects in part a more sober assessment of the Chinese domestic market. For Tung finding the assets that offer a different risk profile to China is paramount. From 2015, Ping An decided it was important to diversify its portfolio away from mainland assets.
“Asset prices started getting expensive. We believed markets offshore were offering better opportunities. We believed that… a percentage of their wealth be deployed in non-RMB assets. The risk of the currency depreciating at this time was also pretty great,” Tung explained.
Ping An’s business structure is well suited to handle this shift. Hong Kong-based Ping An Insurance Overseas, of which Tung is also CEO, is the group’s overseas investment platform, which chiefly makes dollar-based alternative investments in global markets. Plus it owns Ping An Asset Management Hong Kong, which invests in Hong Kong-listed bonds and equities. Chinese onshore investment is conducted by a separate fund asset management division out of Shanghai.
Ping An Group’s investment portfolio of insurance funds (including life and health business) had total investments of Rmb2.79 trillion as of end-2018, meaning that its Hong Kong operations manage about 5% of the parent company’s investment assets.
While Ping An may slightly reduce its overseas alternatives holdings, they are set to remain very important, just as they are to its Chinese investment portfolio.
The company’s history as a China-focused investor partially explains this preference: “The China market is so volatile. Over the past 15 years the Chinese stock market didn’t deliver any return," said Tung. "The best investments were in still in alternative assets, like real estate, that were a proxy for China’s GDP growth.”
Given this concern about volatility, it is unlikely Ping An will invest in places such as Indonesia, for example, but not all frontier or emerging markets are off the table. “We like Vietnam,” said Tung. “It has a young population and its economic growth is robust. It could be an interesting place to invest to catch the beta.”
Catching the alpha is also high on the agenda, notably in the private equity space. So much so that the investment team is now working on raising a $1 billion-plus fund. “We would like to start small and hoping to build our track record quickly,” Tung said.
Its infrastructure business is more challenging, because it’s long term in nature and offers lower returns than private equity. In this area co-investment is clearly best, Tung argued. “We don’t have the capacity to manage that ourselves. In China we do it ourselves, but you can’t find any good [projects] these days. Returns are too low.”
This philosophy is exemplified by recent success in this space. Ping An Insurance Overseas drew about $758 million mostly third-party capital commitments to its global infrastructure funds as of their first close at the end of March. The newly launched funds were partially seeded by Ping An with fund investments and co-investments, and Paris-based investment fund house Ardian has helped to anchor the funds.
The vehicles will combine Ping An assets with third-party investments in infrastructure sector projects. They mark the insurer’s first step in turning its in-house investment capabilities into a global asset management business.
Tung confirmed that greenfield assets were the order of the day for the foreseeable future: “We’re cautious on greenfield. Yes, brownfield is expensive, but it’s still worth working with the best [fund managers] – GLP, Macquarie, Stonepeak etc.”
This interview was taken from a full-length feature in AsianInvestor magazine's Summer 2019 edition.