China allows insurers to double private equity exposure
The China Insurance Regulatory Commission (CIRC) has allowed insurers to invest up to 10% of their total assets in private equity. Investment in the asset class was previously capped at 5%. The move is expected to see $50 billion of fresh capital injected into unlisted companies.
The new set of rules, which was drafted after a two-day meeting between the CIRC and industry professionals last month, is part of a wider effort by the regulator to diversify investment channels for local insurers.
Insurance companies can now invest in primary funds and fund-of-funds covering growth capital, buyouts and emerging strategic industries. They may invest in buyout funds that target PIPE deals, but only if the cumulative value of these transactions doesn't exceed 20% of a fund's corpus.
Although private equity is one of several outbound investment channels open to insurers, the percentage of assets they may commit overseas is capped at 15%, Reuters reported. The regulator has also reportedly identified 25 developed countries including the US, UK and Japan, and 20 emerging markets such as the likes of Brazil, Indonesia and Korea that insurers will be able to invest in.
On Tuesday, the CIRC gave companies the option of outsourcing their investment management businesses to registered brokerages and fund houses.
Chinese insurers currently have close to 35% of their assets in cash and other liquid deposits, are struggling with low investment returns. Last week, China Pacific Insurance issued a profit warning, saying that its first-half net income may drop by 55% year-on-year due to the significant decline in investment yield and a slowdown in business growth.
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