Zhongrong Life mulling foreign-asset moves

The Chinese insurer is exploring when and how to make its first offshore allocations. It is likely to use investment consultants to help it make any substantial moves.
Zhongrong Life mulling foreign-asset moves

Beijing-based Zhongrong Life Insurance is pondering when and how to make its first investments in foreign assets, after substantial changes in the allocation of its $3 billion portfolio since the start of last year.

The firm’s management is very cautious when it comes to alternative and foreign assets, noted Larry Wan, chief investment officer. “We are exploring [doing foreign investments], but it will be a while before we decide to move.

“If we try to do any serious investments offshore, we should hire external investment consultants,” he told AsianInvestor. “A lot of US and European fund managers have come to talk to us, but we’ve not done any serious follow-up yet.”

Zhongrong’s board has not yet made a decision on this; it could be this year or next that it starts to allocate overseas, Wan said.

Indeed, mainland insurers generally are taking their time when it comes to building an overseas portfolio for various reasons, including the relatively high returns that can be achieved onshore, unfamiliarity with foreign investments, and the need to currency-hedge if one buys offshore assets.

The China Insurance Regulatory Commission in October 2012 raised the overseas exposure limit for domestic insurers to 15% and broadened the range of permitted assets.

Meanwhile, Zhongrong has altered its portfolio in other ways since the start of 2013.

Most of it remains in fixed income – bonds, bond funds, money-market funds, certificates of deposit and cash. But Zhongrong has sought to boost returns by roughly doubling its exposure to equities to 15-20% from less than 10% of its $3 billion portfolio, and increasing its allocation to wealth-management products (WMPs) to 5-10% over the past couple of years.

That has come largely at the expense of its allocation to negotiated bank deposits, which accounted for more than half of its AUM in 2012 due to high interbank interest rates, but it has dropped a lot since then.

Last year in particular Zhongrong substantially upped its allocation to WMPs – which invest in different asset types, such as structured deposits, bonds and interbank loans and foreign currency – but the China Banking Regulatory Commission has been introducing more restrictions on these products.

“[The CBRC] know this is a way for banks to get around the strict caps on bank lending, so there has been a crackdown on that in the form of more scrutiny, more frequent inspections of balance sheets,” he noted.

Asked to what extent Zhongrong uses external managers, Wan said the firm has five or six mutual fund allocations across bonds and equities. Almost 100% of its equity allocation was run by external managers a few years ago, but now 80% of it is done in-house.

“We can do the investment and research ourselves, but we hire external managers because we need their expertise for knowledge transfer, benchmarking, to see what they’re doing and retain a relationship with them,” he added. “But in fact our own performance is better than theirs.”

* The full interview with Larry Wan appears in the latest (November) issue of AsianInvestor magazine.

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