Insurance Companies Active in Private Equity: China’s Growing Involvement

by Joseph Borda

  • 28 Sep 2015
  • PE

Of the 378 insurance companies actively investing in private equity that Preqin’s Investor Intelligence online service tracks, US-based insurance companies account for the largest proportion (40%). At the other end of the spectrum, known Greater China-based insurance companies that invest in private equity make up approximately 4%, but this should be of no surprise. The relatively young Chinese private equity market has been one of the fastest changing in the world. The market has undergone a number of changes not just in how it is regulated, but also in the way that it functions, with insurance companies becoming some of the newest investors. The China Insurance Regulatory Commission (CIRC) began allowing domestic insurance companies to invest in private equity funds in 2010 and have slowly broadened the industry’s ability to invest in the asset class.

US-based insurance companies have aggregate assets under management (AUM) of approximately $7.5tn, whereas Greater China-based insurers have aggregate AUM of just $1.9tn. Furthermore, US-based insurance companies have an average current allocation to private equity of 2% of total assets, compared to an average current allocation of 1% for Greater-China based insurers. Due to the fact that China-based insurance companies are relatively new investors in the private equity sphere, it can be expected that their activity and allocations to the asset class will continue to increase as they gain more flexibility from the CIRC, as well as experience at investing.

More flexibility enables more investments and possibly greater diversification. China-based insurance companies currently primarily target buyout and venture capital funds – the more traditional fund types. US-based insurance companies also show preference for buyout and venture capital funds – 71% and 62% of insurance companies respectively – but they also show greater diversification. A considerable proportion of US-based insurers target mezzanine (53%), growth (47%), fund of funds (39%), distressed debt (36%) and natural resources vehicles (25%), highlighting their sophistication as more experienced players in the industry.

As of Q1 2015, CIRC said it would allow insurance companies to establish private equity funds in the form of limited partnerships in order to support the development of small and micro-enterprises. Additionally, as recently as the beginning of September 2015, the CIRC has allowed insurance companies to establish private equity funds to invest in key industries that are supported by the government. The purpose is to broaden investment channels for the insurance companies and to provide funding for the country’s major infrastructure projects. This continued loosening of regulation should allow Greater China-based insurance companies to become greater players within the global private equity market.

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