Asia-Based Insurance Companies Investing in Real Estate – April 2013

by Ee Fai Kam

  • 24 Apr 2013
  • RE

According to Preqin's Real Estate Online database, there are 54 insurance companies located in Asia-Pacific investing in the real estate asset class. Collectively, they hold more than $3tn in assets under management (AUM), of which approximately 2% is currently allocated to real estate. This is slightly less than the 2.5% current allocation insurers based outside of Asia-Pacific hold for the asset class.
At the moment, 46% of Asia-Pacific insurance companies have exposure to private real estate funds, compared to 70% of insurers based elsewhere. However, this number could increase over the next few years as investors in Asia-Pacific show signs of growing sophistication and expansion in their investment scope. One such example is that of Chinese insurance companies. In late 2012, the governing authority for insurance firms operating in China, China Insurance Regulatory Commission, issued revised guidelines that allowed domestic insurers to increase their allocation to the real estate class from 10% to 15%. This was preceded by a previous announcement by the same governing body that increased the maximum allowable real estate allocation to 10% in 2010.
So how does the strategy preference of Asia-Pacific insurers differ from their counterparts elsewhere? Sixty-three percent of Asia-Pacific insurance companies investing in private real estate funds have a preference for core vehicles, and an identical percentage prefers the core-plus strategy, while 49% and 38% of insurers based in all other regions invest in core funds and core-plus vehicles respectively. Asia-Pacific insurers which have an interest in value added funds make up 46% of the investor pool, while 62% of insurance firms located elsewhere have the same preference. Opportunistic funds are the fourth most favoured strategy among Asia-Pacific insurance firms, with 33% of these investors using such vehicles – compared to 61% of insurers in other parts of the world. Finally, 25% of Asia-Pacific insurers invest in debt-type private equity real estate funds, and 17% prefer distressed vehicles, while 38% and 29% of insurance companies invest in these two strategies respectively. The observable trend is that Asia-Pacific insurance firms prefer lower risk strategies such as core and core-plus private real estate funds while insurers outside of the Asia-Pacific region are willing to consider vehicles with significantly higher investment risks such as value added and opportunistic funds. This could be due to the relative youth of Asia-Pacific insurance companies in private equity real estate fund investing as compared to their overseas counterparts.
In terms of geographical preference, the home region is the preferred destination for Asia-Pacific insurers investing in private real estate funds; 72% of the investor pool will invest in Asia-Pacific, compared to only 26% of overseas insurance firms. Thirty-eight percent of Asia-Pacific insurance firms with exposure to private real estate funds invest in European assets and 34% are interested in the North American market, while 59% and 55% of non-Asia-Pacific insurance firms invest in the European and North American properties respectively. Looking at Rest of World - Latin America, Africa, Israel and the Middle East - none of the Asia-Pacific insurance investor pool will consider private funds investing in such markets, but at least 9% of insurers based elsewhere will.
In conclusion, Asia-Pacific insurance companies are at an earlier stage of development with regards to investing in private real estate funds compared to their counterparts elsewhere. Better local knowledge and the relatively more stable state of the economy in Asia-Pacific over the past few years have likely contributed to the majority of Asia-Pacific-based insurers having a preference for investing in their home region. As Asia-Pacific insurance companies mature and increase in AUM, we are likely to see more of them venturing outside of the Asia-Pacific region and into private real estate funds, utilizing riskier strategies in a wider range of geographies.

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