China Life to launch PE vehicle

China Life, the world's largest insurer by market capitalization, claimed insurance premiums of RMB350.6 billion ($55 billion) at the end of 2010 and total assets of RMB1.77 trillion ($277 billion). On this basis, $13.8 billion could be channeled into private equity and $27.7 billion into real estate. However, the CSRC's rules specify that only 4% of total assets can be committed to private equity funds and 3% to property-related financial products.

This implies that $2.7 billion and $16.6 billion of the private equity and real estate allocations, respectively, would be for direct investments (although direct participation in real estate development is outlawed).

Industry sources tell AVCJ that Pingan, China's second-largest life insurer, hopes to be the next to receive a license. This is a logical next step in a much wider reform process. By allowing insurers to access different asset classes, the regulators hope to boost returns on investment and also channel more money into the private sector, thereby sustaining economic growth.

Insurance companies have been allowed to invest in private equity since August 2010, according to Wenli Yuan, senior analyst at research and consulting firm Celent, but deals required approval on a case-by-case basis.

In the near term, limitations will remain on insurance companies' private equity funds. At present, they are only allowed to target insurance and insurance-related firms such as pension, medical and auto services companies, as well as non-insurance financial corporations. The critical difference is that China Life is now able to evaluate and invest in private equity independently.

"Since there are still limitations on industry and size, insurance companies' investment in private equity will not greatly change the competition structure right now," Yuan says. "But this is a move in the right direction and it will lead to wider opportunities for investment by insurers."

This is latest reform comes one month after a pilot program allowing securities companies to raise private equity funds won approval for a formal rollout. As with insurance firms, there are limitations: Securities firms can launch local private equity subsidiaries and raise funds in a limited partnership, but cannot invest more than 15% of their own capital into vehicles they set up. The number of investors in a single fund has also been capped at 50.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Regulation
• Fundraising
• Financials
• China Life