First insurance-backed PE fund launches in China

Six of the country’s insurers have gained CIRC approval to launch a fund focusing on SMEs

A group of insurance companies in China have joined together to launch the first-ever insurance-backed private equity fund in the country. The move comes as regulations around investing in the asset class continue to loosen for Chinese insurers.

Sun Life Everbright Asset Management is leading the consortium, and will commit 50 percent of the RMB100 million ($16 million; €14 million), according to a statement.

The five other insurers are Anhua Agricultural Insurance Company, Chang An Property and Liability Insurance, Soochow Life Insurance, Kunlun Health Insurance and Taishan Property & Casualty Insurance Company, which will each commit 10 percent of the fund.

The move comes just a week after the China Insurance Regulatory Commission (CIRC) announced new rules permitting insurance companies to create their own private equity funds, not just invest as LPs.

While the move signals increased liberalisation from Chinese regulators, it could be problematic for private equity funds planning to target insurance companies as investors after they were given permission to invest up to 30 percent of their assets in alternatives.

Now, however, insurers can establish funds on their own, potentially competing with private equity firms, Serena Tan, lawyer at Debevoise & Plimpton, explained.

“Previously, Chinese insurance companies could only invest in private equity funds as LPs (rather than act as GPs). However, Chinese regulators have stated that, beginning as of 2015, insurance companies may now sponsor Chinese private equity funds formed with the purpose of investing in small- and medium-sized Chinese enterprises,” she told Private Equity International.  

However, this latest fund is a mere “toe in the water” for the insurance industry, which by-and-large do not have sophisticated teams to make direct investments that would compete with existing GPs, Andrew Ostrognai, partner at Debevoise, adds.

“It is a learning process for everybody, any new-ish fund is going to have some sort of learning curve. It is a very interesting idea, but at a size of $16 million it won’t make much of a financial ripple at this point. The interesting inflexion point will be when you get an insurance-sponsored fund of a significant size.”