China-Based Insurance Companies Can Now Invest in Overseas Private Equity Funds

by Wan Ping Chia

  • 02 Nov 2012
  • PE

As China’s private equity industry matures, global industry players in the asset class have been eyeing the country’s growing market with keen interest. Last month, China Insurance Regulatory Commission (CIRC) announced new regulations that would permit certain types of overseas investments to be made by domestic insurance companies. These investments include private equity fund commitments. Though qualified insurance companies are only permitted to make direct investments in 25 developed countries and 20 emerging markets, the insurers will not be restricted to these geographic regions when making private equity fund investments, allowing GPs from over the globe to tap into this fresh pool of investor capital.

Given the potential for these new regulations to provide an influx of fresh capital into the asset class from China, we take a look at the regulations and parameters of these regulations.

China-based insurance companies looking to invest in private equity funds overseas are restricted to the following guidelines:

  • Overall offshore investments are capped at 15% of the investor’s total assets.
  • Private equity investments (including fund commitments and direct investments in unlisted firms) are capped at 10% of the investor’s total assets (including domestic and international investments).
  • Private equity fund commitments are limited to vehicles targeting growth stage enterprises or firms with high M&A value.
  • Commitments to eligible private equity funds of funds are permitted on the condition that these vehicles do not invest in other fund of funds vehicles.  

On the other hand, fund managers looking to garner capital from China-based insurers have to meet the following criteria:

  • The size of the prospective vehicle must not be lower than $300mn.
  • Fund manager’s paid-in capital should be a minimum of $15mn.
  • Cumulative assets under management of the GP should be at least $1bn.
  • Each GP team should consist of more than 10 members experienced in private equity investments, of which at least two members must possess more than eight years of relevant experience. In addition, at least three professionals on the team must have worked together for three years.

With the regulations on offshore private equity investments somewhat relaxed, we are likely to see more China-based insurance companies becoming active investors in the asset class over the coming years.

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