Chinese insurance LPs eye Australian PE

After regulatory changes allowing Chinese insurance companies to invest in offshore private equity, many have been looking to Australia to deploy their vast capital resources.

Chinese insurance companies are exploring Australia to invest in private equity and other alternative investment funds, according to Mark McNamara, partner at King & Wood Mallesons in Sydney. 

He told Private Equity International that a number of delegations from Chinese insurance firms have visited Australia and are keen to invest capital in the country’s developed private equity market. 

In October last year, the China Insurance Regulatory Commission (CIRC) released regulations that allow Chinese insurance companies to invest in private equity in 45 countries and regions, liberating a huge pool of untapped capital. 

McNamara said that Australia is an ideal market for Chinese insurers to explore private equity and real estate investment. Chinese insurers' offshore fund investment requirements include committing capital only to GPs with a minimum of $1 billion AUM, which is more likely to be found in the developed market of Australia than in other Asia Pacific markets. Chinese insurers are also unable to invest in foreign funds sponsored by any financial institution or bank, which is very rare in Australia. 

The Aussie superfunds have had a pretty substantial withdrawal from supporting the domestic private equity funds

Mark McNamara, partner, King & Wood Mallesons

“We’ve had visits from Chinese life insurance companies recently and they are very interested in Australia because it is a stable investment destination in this region,” Jim Boynton, partner at King & Wood explained. 

Moreover, changes in Australia’s tax system make it attractive to foreign investors, according to a report from King & Wood. The managed investment trust regime offers foreign investors in certain jurisdictions, including China, to access a tax concession of 15 percent, while under the more recent investment manager regime, qualifying foreign funds may also be exempt from Australian tax if they establish or manage foreign domiciled funds.

Australia’s domestic fund managers, which have to increasingly look offshore for capital, would welcome Chinese investors.

“The Aussie superfunds have had a pretty substantial withdrawal from supporting the domestic private equity funds. Where previously a lot of them were almost wholly invested in by domestic supers, that has markedly changed and I think you’d even struggle to find a fund that isn’t predominated by overseas investors,” McNamara commented. 

Paul Evans, COO, Ironbridge Capital, told PEI in an earlier interview: “It is very difficult to imagine that Australian GPs are going to be drawing a third or more of their capital going forward from domestic LPs. The proportion of capital they raise from local LPs will continue to decline over time.”

Many of Australia’s larger private equity funds are in the market this year, including Pacific Equity Partners, which aims to raise A$3 billion in capital and, according to industry sources, CHAMP Private Equity.