China to relax constraints on insurance participation in PE

The China Banking & Insurance Regulatory Commission (CBIRC) said it would amend rules that currently restrict insurance firms to investments in private companies that are relevant to their core business, such as healthcare or aged care. Instead, the regulator will publish a ‘negative list’ of sectors in which insurers cannot participate. This applies to investments made in companies directly or through private equity and venture capital funds.

In addition, a ban on private investment by insurance firms that failed to make a profit in the previous financial year will be lifted and the net asset threshold insurers must meet to be allowed to invest in private companies will be lowered from RMB1 billion ($143.5 million) to RMB100 million. The regulator has invited public comment on the proposals and as yet there is no implementation date.

“This revision is a positive sign which indicates that insurance money could become one very important funding source for private equity firms,” said Ruiqiu Song, a partner at King & Wood Mallesons, in a note to clients.

Insurance premiums in China surged from RMB460 million in 1980 to RMB3.66 trillion at the end of 2017, according to the CBIRC. Insurers were first permitted to invest in private equity and venture capital investment in 2010, although the strict qualification and sector exposure criteria limited the number of participants and scope of investment.

The proposed rule change comes as Chinese private equity firms have struggled to raise local currency funds since the middle of the year. Approximately $27 billion was raised in the first six months of 2018, but between July and September, the total fell below $1 billion, according to AVCJ Research.

There are several reasons for the deterioration in conditions. They include concerns about the meltdown in the peer-to-peer (P2P) lending space – several wealth managers that raise PE vehicles are also known for offering P2P products – a weakening in market sentiment driven by global trade tensions or the slowing economy, and restrictions on financial institutions participating in the asset class.

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• Topics
• Greater China
• Regulation
• Fundraising
• Renminbi fund
• China
• Renminbi
• China Banking & Insurance Regulatory Commission