Chinese Regulator Allows Insurers to Dip Their Feet Into PE and Real Estate

(September 7, 2010) — China will allow its $661 billion insurance industry to expand their investment channels into private equity and real estate to reduce investment risks, which could provide up to $100 billion in fresh funding for unlisted firms and the property sector, according to the China Insurance Regulatory Commission (CSRC).

According to rules published on the website of the CSRC, Chinese insurers are permitted to invest up to 5% of their total assets in private equity and related financial products, and 10% in real estate.

“The rules would enable insurers to better match their assets and liabilities, improve asset allocation, ease investment pressure, diversify risks, and protect asset safety as well as the interests of policy-holders,” the CIRC said in the statement.

Additionally, the regulator said that insurers are not allowed to acquire stakes in venture capital firms, as well as companies that the government has classified as polluting and energy-intensive, or those with poor cash returns. The CIRC also noted that for real estate investments, insurers cannot invest in commercial properties, directly participate in real estate development or invest in setting up real estate companies.

The move represents the effort among insurers to escape from the stock-market and instead seek alternatives to increase investment returns. The new rules could raise money more easily into China, boosting long-term investment returns for insurers including China Life and Ping An, and could translate to positive news for US buyout houses Carlyle, TPG and Blackstone, which have all been making moves into the country. While TPG launched two $740 million funds in the last week of August in Shanghai and Chongquing, Blackstone set up a $740 million fund with the Shanghai government in August 2009, Alt Assets reported.

“The launch of detailed rules, which set a clear practical guideline for insurers, is good news for the commercial sector, especially for the en-bloc sales market,” Grant Ji, director of the investment department of real estate service provider Savills (Beijing), told the China Daily. “How fast insurers’ influence grows depends on the market situation and the maturity of their investment teams.”