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China Pacific Insurance Ups Alternative Investments

By Yang Qiaoling and Liu Xiao
Chinese insurers are allocating more of their assets to riskier investments, as evidenced by China Pacific Insurance (Group) Co.'s deal with Aluminum Corp. of China Ltd. (Chalco) to create a $1.53 billion fund. Above, aluminum ingots are stacked at a plant of the parent company of Chalco, in Baise, the Guangxi Zhuang autonomous region, in June 2012. Photo: IC
Chinese insurers are allocating more of their assets to riskier investments, as evidenced by China Pacific Insurance (Group) Co.'s deal with Aluminum Corp. of China Ltd. (Chalco) to create a $1.53 billion fund. Above, aluminum ingots are stacked at a plant of the parent company of Chalco, in Baise, the Guangxi Zhuang autonomous region, in June 2012. Photo: IC

China Pacific Insurance (Group) Co. is delving into aluminum projects, as the country’s third-largest insurer aims to drum up returns by investing outside safe-haven assets.

The insurer agreed to set up a 10 billion-yuan ($1.53 billion) fund with state-owned Aluminum Corp. of China Ltd., commonly known as Chalco, according to a statement by the metals producer issued Tuesday.

Chinese insurers are allocating more of their assets to riskier investments to chase better returns. As of the end of July, the entire insurance industry allocated 39.08% of its funds to alternative investments, up from 38.52% as of the end of June, data from the China Insurance Regulatory Commission (CIRC) show.

Those investments include investment in private equities, debts and stakes in infrastructure projects, real estate and trusts, as well as wealth management products issued by commercial banks. These assets are deemed riskier because they take longer to be turned into cash, and can have opaque structures and long maturities.

Safe-haven assets such as bank deposits and fixed-income instruments remain the biggest asset class in the insurers’ portfolios, but has shrunk to 48.12% by the end of July from nearly 80% in late 2012.

Pacific Asset Management Co., a subsidiary of Pacific Insurance, said it will raise money for the fund to invest in Chalco’s projects through perpetual bonds. Similar to stock dividends, perpetual bonds pay out fixed interest payments indefinitely as they have no maturity date.

“Pacific Insurance will continue to increase the proportion of its alternative investments, especially equity investments,” said Wang Cheng, CEO of Pacific Asset Management Co., during a CIRC news conference on Wednesday.

Pacific insurance has increased its proportion of alternative investments over the past few years because these investments have long time horizons and good returns, Wang said. Alternative investments are also the most direct way to channel capital from the insurance industry into the real economy, he said.

Cumulatively, Pacific Asset Management has set up nearly 80 alternative investment projects involving about 130 billion yuan. Projects include municipal administration, energy, environmental protection, land reserves, slum housing upgrades, water conservation, and social housing.

Risk has increased with the amount of alternative investments as there are more entities and more-complex transactions structures, Wang told Caixin, but added that each organization will choose an alternative investment policy that best fits its risk management capabilities.

In the first half of the year, Pacific Insurance’s annualized return on investment was 5.1%, company Board Secretary Ma Xin told Caixin. He added that the rate of return on alternative investment was higher than 5.1%, but didn’t say what the rate was.

Contact reporter Liu Xiao (liuxiao@caixin.com)


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