Cathay Life allocates an extra $1bn – Exclusive(1)

The Taipei-based insurer, which has around $3 billion in private equity and hedge funds, is looking to invest another $1bn during 2017.

Cathay Life Insurance, Taiwan’s biggest insurer with over $140 billion in assets under management, expects to increase its $3 billion alternative assets portfolio – which comprises a mixture of private equity and hedge fund investments – to around $4 billion in the next year, a source within the organisation told Private Equity International.

“We increased our private equity [and hedge fund] exposure continuously in the last few years to have as much as $3 billion commitment at this point, and will keep expanding the portfolio going forward. Our plan is to increase the portfolio from $3 billion to $4 billion for 2017,” the person, who declined to be named, told PEI.

Cathay Life allocates about 2 percent of its overall portfolio to private equity and hedge funds, while majority of its assets are invested in fixed income, public equities as well as domestic and foreign bonds.

Cathay Life’s typical fund investments are between $30 million and $50 million, and target a wide range of fund types such as buyouts, secondaries, distressed assets, and venture capital, according to PEI data.

The insurer has backed KKR’s Asian Fund II, which raised $3 billion in 2013, as well as to Hong Kong-based fund of fund manager Asia Alternatives’ fourth vehicle, which raised $1.8 billion in April 2015. In 2016, it invested in San Francisco-based Vista Equity Partners’ $5.8 billion sixth fund.

It is not clear how Cathay Life’s increased allocation to private equity will be possible under Taiwan’s rules surrounding insurance companies. Taiwanese insurers have an investment mandate that strictly limits their exposure to alternatives to 2 percent of investable capital, which comprises shareholder’s equity and all statutory reserves. Additionally, while the Taiwanese government has relaxed foreign investment rules in April 2013 to allow domestic insurance companies to invest in real estate abroad, they are still not allowed to make foreign direct private equity investments.

A media spokesman for Cathay Life declined to comment on the increased allocation to private equity and how this might be possible within regulatory constraints.

According to Ernst & Young Taipei, several major insurers in Taiwan have been discussing with regulators to increase the cap from 2 percent to 5 percent. Although the timing is unknown, around NT$400 billion of potential capital can be invested in private equity should the reform go ahead.