Sunshine Insurance plans PE fund

The Chinese insurance company follows Sun Life Everbright that leads a consortium of insurer’s setting up a private equity vehicle.

China’s Sunshine Insurance Group is following in the footsteps of a consortium led by Sun Life Everbright Insurance to set up a private equity fund, Dechert associate Karl Gao, told Private Equity International.

Regulation to approve Sun Life Everbright and Sunshine funds was approved in January, and these insurance companies are testing the waters, said Serena Tan, Debevoise associate in Hong Kong. Other licenses are expected to be issued soon but no announcement has yet been made.

Sun Life Everbright Asset Management is leading the consortium of Anhua Agricultural Insurance Company, Chang An Property and Liability Insurance, Soochow Life Insurance, Kunlun Health Insurance and Taishan Property & Casualty Insurance Company, as reported by PEI.

The firm will commit 50 percent of the RMB 100 million ($15.8 million; €13.9 million) fund, with each of the others committing 10 percent.

In September the China Insurance Regulatory Commission (CIRC) issued guidelines for insurance companies to establish their own private equity funds to invest in industries nominated by the government. These include health care, elderly care, technology, biotech and infrastructure.

To establish funds, the insurer must meet certain criteria, including having a team equipped to manage two or three assets.

It is likely that Chinese insurance companies would need to invest significant sums in the funds they establish as managers in order to gain traction and/or a track record, said Gao, who is based in Singapore.

However, whether insurance companies are able to fund raise is not assured, Gao said.

“The ability to set up a fund management business will not necessarily translate into successful fund raisings: for example, we would envisage that they would need to recruit very strong teams to be able to raise third party capital.”

Chinese insurers are permitted to invest up to 10 percent of their assets to private equity as limited partners.

Sunshine Insurance has a 37.5 percent allocation to alternative assets, according to PEI Research & Analytics.

Gao said the new legislation was positive and will allow firms to diversify, but “it may not have a meaningful effect on the Chinese economy.”