China Life to boost alternatives exposure

If the mandate awarded to China Life Investment Holding (CLI) - a specialist alternative investment arm set up in 2007 - is fully exercised, it would represent nearly 8% of the RMB1.9 trillion China Life claims to have in total assets. It would take the insurer's overall alternatives allocation past 10%.

The move is further evidence of how Chinese insurers are scaling up their exposure to assets such as private equity and real estate. With their huge assets bases and long-dated liabilities seen as a good fit for private equity, the country's insurers are seen as a highly attractive yet still relatively untapped LP constituency.

"Through investing in the alternative investment products, the Company can further expand and diversify its investment portfolio, better diversify its investment risk and capture investment opportunities with higher potential and returns," China Life said in a statement.

CLI's activities cover private equity, real estate, pension and health investment, and asset management. The company claims to have nearly RMB40 billion in assets under management plus over RMB10 billion in its own assets and more than a dozen holding companies.

According to China Life, CLI has been providing investment and management services for insurance funds since March 2013. As of September 2014, RMB46.5 billion in assets had been entrusted to CLI. It received management and performance incentive fees totaling RMB50.2 million. At the end of 2013, China Life had allocated just RMB11.1 billion to CLI.

The China Insurance Regulatory Commission (CIRC) allowed insurers to invest in domestic private equity in 2010. The follow year the cap on exposure to private funds and companies was raised to 10% from 5%. Earlier this year, the regulators decreed that investments in public and private equities combined could account for 30% of the total assets.

In 2012, insurers received the go-ahead to participate in offshore funds. Their overall offshore investment is capped at 15% of total assets, including fix-income products and private equity fund investments. China Reinsurance (China Re) was the first to commit to enter an offshore fund, committing $30 million to KKR's 11th North American vehicle.

Progress has been gradual because many insurers are still building in-house investment teams. Industry participants told the AVCJ China Forum earlier this year that unfamiliarity with asset allocation strategies and an emphasis on short-term investment returns are the underlying issues limiting insurers' exposure to private equity.

"Many executives from state-owned insurance companies only focus on investments with a short-term horizon where the returns are more visible. But that's not the case with private equity," said John Qu, vice general manager of assets management at China Re. "Investment teams, usually the company's existing employees, do not realize the importance of building a PE portfolio. They are used to investing in public markets and picking the best stocks."

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• Topics
• LPs
• Greater China
• Fundraising
• China Life
• LPs
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