The Asian investor universe has been evolving, with many LPs becoming increasingly sophisticated in their willingness to commit to alternatives. More than ever, institutional investors are under pressure to diversify their portfolios amid a low-yield environment. Chief among them are the insurance companies that are seeking assets with higher absolute returns as they aim to match their investment assets and insurance liabilities. Below we highlight some of the insurance companies that could feature more prominently in the private debt industry in the future:
1. China Taiping Insurance
Headquarters: Hong Kong
AUM: HK$587.3 billion (€60.2 billion; $75 billion)
Among the conglomerates moving into alternative investments is China Taiping Insurance. The Hong Kong-headquartered insurance firm tells PDI that it is now actively allocating its assets to alternatives and revamping its private credit exposure.
“We are focusing on private credit investments with asset-backed, corporate and personal guarantees, mainly in Hong Kong and China,” an investment manager with China Taiping tells PDI. The firm says it typically commits to US dollar-denominated products with investment horizons of three to five years and target return rates of high single-digits.
According to China Taiping’s 2017 interim report, the group’s alternative investments amounted to HK$138.5 billion, representing approximately 23.6 percent of the total assets. Its real estate debt assets accounted for HK$16.3 billion. The firm operates as an investment holding company, which is engaged in the underwriting of the direct life insurance business, property and casualty insurance business and reinsurance business.
In July 2017, the insurance firm agreed to acquire majority stakes in Tellon Development Limited, an investment holding company that operates in property rental, infrastructure construction, real estate management, according to a stock exchange filing. China Taiping Insurance Holdings Company – formerly the China Insurance International Holdings Company – is listed on the Hong Kong Stock Exchange.
2. Mirae Asset Life Insurance
AUM: 24.1 trillion won (€17.8 billion; $22 billion)
Mirae Asset Life Insurance is an insurance arm of Mirae Asset Global Investments, the largest Korean asset management group. The insurance unit is seeking mid-sized offshore deals to gain exposure to real estate debt strategies in 2018 on a deal-by-deal basis.
“Given the current risk-based ratio charge on blind funds, we are reluctant to commit to both equity and debt blind fund vehicles,” Jun Kim, director at Mirae Asset Life Insurance told industry participants at the PERE 2017 Seoul Investor Forum. Kim noted that as blind funds are designed to be tax efficient, the Korean regulator categorises them as equity-type investments that have a maximum capital charge of 49 percent.
“We plan to review investment opportunities on a deal-by deal basis. The benefits from such an approach include better understanding of the industry, greater control on investments and transparency, learning opportunities from global managers, and networking opportunities,” Kim said. The firm is also expanding its variable account businesses where the firm manages policyholders’ assets with an investment component. For instance, Mirae Asset Life agreed to buy PCA Life insurance, a Korean subsidiary of a UK-based financial services group, Prudential, in May 2017. It plans to complete the merger by 28 February.
3. NH Life Insurance
AUM: 61.8 trillion won ($56.9 billion; €46.3 billion)
Seoul-headquartered life insurance company NH Life Insurance tells PDI that it started building its private debt investment portfolio in 2015. Out of a total offshore alternatives allocation of 1.5 trillion won, in fiscal year 2017, the insurer committed 750 billion won to offshore real estate debt funds.
“Like our peer group, we are focusing on real estate debt investment opportunities in the US,” a Seoul-based senior investment manager at the investment financing division of the insurance firm tells PDI, adding that “European debt opportunities are not necessarily suitable for us as we think the current base rate in the region is too low to bear.”
Equity investment is not an easy choice for many insurance companies in Korea, given the highest risk-based capital charge on private equity and high pricing of offshore real estate assets. NH Life will continue to allocate around 750 billion won to real estate debt in 2018, according to the investment manager.
4. Nippon Life Insurance Company
AUM: ¥64.80 trillion ($609.1 billion; €553.7 billion)
Since 2017, when the Tokyo-headquartered Nippon Life Insurance Company revealed its three-year management plan, the firm has been investing in renewable energy and power plant projects across developed countries.
Nippon Life has been investing in direct lending and infrastructure debt strategies for some time. Now, the firm plans to continue expanding its exposure to alternatives as the low-to-negative interest rate environment, in both onshore and offshore markets, pushes them to seek higher returns. The firm told PDI in February last year that it may grow its exposure to private credit via direct lending strategies. In terms of its risk profile, the insurance firm has invested in mezzanine tranches with a focus on corporate debt and infrastructure debt exposure. Specifically, the insurance firm has committed to an infrastructure debt fund managed by Munich-headquartered financial services company Allianz.
Nippon Life Insurance Company, part of the Nissay Group, is the second largest life insurance company in Japan. Nissay is looking look to expand its asset management business. The firm is also looking to buy a stake in TCW Group, a Los Angeles-headquartered asset management company, from Carlyle, according to media reports. Nippon Life allocates 1.3 percent of its assets to global alternative investments. Its typical fund commitment size ranges from $40 million to $70 million apiece.