Chinese regulator provides guidance on insurers setting up PE funds
China's insurance regulator has broadened insurance company’s permitted investment areas through their private equity funds, the latest effort to allow greater exposure to alternative assets.
Chinese insurers are encouraged to set up their own GPs and launch PE funds in the forms of buyout funds, emerging strategic industry-focused funds, mezzanine funds, real estate funds, fund-of-funds and venture capital funds, the China Insurance Regulatory Commission (CIRC) said in a detailed guidance.
The PE funds, launched and managed by insurers' asset management units, are allowed to invest in the country's infrastructure projects, cash-strapped small and medium enterprises (SMEs), retirement healthcare services, and other emerging industries such as internet finance, the regulator said. The GPs should commit at least 30% to each fund.
Earlier this year, the regulator permitted insurers to set up PE funds that focused on investment in SMEs. The asset management unit of Sun Life Everbright Life Insurance, which is backed by China Everbright Group, launched a fund, becoming the first domestic PE vehicle established and managed by a Chinese insurance company.
This came after Chinese insurers received regulatory clearance to invest in venture capital funds in December last year.
Insurers were first allowed to make LP commitments to domestic private equity funds in 2010. The following year the cap on investment was lifted from 5% of total assets to 10%, and then last year it was decreed that public and private equities combined could account for 30% of assets. Fast-track approvals have also been introduced for PE fund commitments.
Along the way, insurers were also given the green light to participate in offshore funds, with overall offshore investment capped at 15% of total assets.
The total asset value of China's insurance sector reached RMB10 trillion last year. Although Chinese insurers are empowered to do more in private equity than ever before - including the right to set up their own GPs - not all market players will plot such a course immediately.
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