Taikang Life to boost offshore exposure

The Chinese insurer is set to start awarding overseas mandates in 2014 through its offshore investment arm, which in turn is eyeing the Hong Kong retail market.
Taikang Life to boost offshore exposure

Taikang Life, China’s sixth biggest life insurer, is working on plans to increase its overseas exposure via external managers; it is particularly keen on Europe and the US.

This follows a move late last year by the Chinese insurance regulator to expand the scope of insurance firms’ foreign investments, leading fund houses to anticipate a substantial flow of capital offshore from the mainland.

Beijing-based Taikang Life, with $55 billion in AUM as of end-2012, will approach foreign fund houses in developed markets through its offshore investment arm, Taikang Asset Management (HK).

The Hong Kong-based unit is mainly invested in Greater China equities and investment-grade bonds, but it is seeking to build up the insurer’s global portfolio, says Craig Chen, CIO of Taikang AM (HK). He expects to have an asset allocation plan in place by year-end, with mandates likely to be handed out as early as 2014.

“We are currently devising our global asset allocation strategy [and] seek to diversify our portfolio in different asset classes and regions,” Chen tells AsianInvestor

The firm plans to continue running its China and Asia exposure in-house through its 20-strong investment team, he adds, but it will seek external help for allocations to Europe and the US.

“We seek to partner with top global managers who possess both local knowledge and a global perspective,” says Chen. “It is difficult for us to buy into a market that we are not familiar with.”

Taikang AM (HK) will initially invest in traditional asset classes, such as securities, bonds, exchange-traded funds and other investment funds, eventually moving into alternatives.

The firm still has not decided how much it will invest in overseas markets, Chen says, noting this depends on a number of factors.

“We will consider potential returns for the onshore market, and also room for renminbi appreciation,” says Chen. The insurer is ideally looking for a higher return on its offshore investment than its onshore allocations, on a risk-adjusted basis.

Beijing-based Taikang AM, which incorporates Taikang AM (HK), has some Rmb460 billion ($75.2 billion) in AUM, but expects that to surpass Rmb500 billion by year-end. It holds licences for China’s qualified domestic institutional investor (QDII), qualified foreign institutional investor (QFII) and the renminbi qualified foreign institutional investor (RQFII) programmes. These allow it to invest overseas as well as into mainland securities.

Zhang Le, managing director of Taikang AM (HK), says the firm has already started its QFII advisory business. And after obtaining Rmb800 million in RQFII quota earlier this year, it aims to offer its first products for Hong Kong retail investors.

Taikang, which has been investing in the mainland fixed income market for 17 years, has a 12-strong team dedicated to researching internal credit ratings, as most Chinese corporates do not hold international credit ratings.

“Credit management capability is one example of where we stand out,” Zhang says. “Therefore, we would like to step into the Hong Kong retail space with what we are good at to deliver performance to investors.”

China’s corporate debt market totals Rmb6 trillion, with investment credit yielding 4.5% to 5.5%. As there is further potential for RMB appreciation, the mainland bond market represents tremendous opportunities, argues Zhang.

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