First ABS Managed by Insurer-Backed Asset Managers Debuts in Shanghai

In a strategic move to expand insurance funds' participation in China's capital market, the first asset-backed securities (ABS) managed by an insurer-backed asset management company were introduced on the Shanghai Stock Exchange. This significant issuance totaled 1.26 billion yuan ($174 million) and was managed by Taikang Asset Management Co. Ltd., which is a subsidiary of Taikang Life Insurance Co. Ltd. The ABS were underpinned by assets of CPI Ronghe (Shanghai) Financial Leasing Co. Ltd., a venture involving the state-owned power generator, State Power Investment Corp. Ltd. [para. 1][para. 2]

ABS are financial instruments in which funds are invested in underlying assets that generate cash flow, such as efficiently operated infrastructure or real estate projects. [para. 3] Recognizing the potential of such financial products, China's financial regulators announced a pilot program in October, permitting insurer-backed asset management companies to engage in ABS and real estate investment trusts (REITs) to diversify the financial market further. [para. 4]

Five companies were chosen to participate in this pilot program, namely Taikang Asset Management, China Life Asset Management Co. Ltd., Pacific Asset Management Co. Ltd., PICC Asset Management Co. Ltd., and Ping An Asset Management Co. Ltd. According to the regulators, this initiative aimed to promote mutual development and synergy between insurance funds and the capital market, thereby achieving a more integrated financial ecosystem. [para. 5][para. 6]

Industry experts have highlighted that the pilot program will stimulate interest among insurance companies to engage in ABS, encouraging a broader array of investors in the ABS market. Moreover, insurer-backed asset managers are expected to deepen their involvement in REITs, further diversifying their investment portfolios. [para. 7] Previously, the management of ABS and REITs was primarily dominated by securities brokerages and their asset management subsidiaries. Insurer-linked asset managers had limited access, mainly purchasing newly offered REITs but with constrained involvement in the ABS market. [para. 8]

The push towards alternative investments is particularly crucial for Chinese insurers, who are seeking higher returns amidst a prolonged property crisis and rising local government debt risks. These economic challenges are prompting insurers to reduce their investments in non-bond debt issued by property developers or infrastructure builders, which traditionally have been a primary investment avenue for insurance funds. [para. 9]

To address these concerns, some insurance asset management companies are pivoting towards ABS and unlisted equities as viable alternative investments. [para. 10] Taikang Asset Management, for example, submitted an ABS issuance plan to the Shanghai Stock Exchange in December, initially proposing a size of 1.47 billion yuan. Additionally, Pacific Asset Management's 2-billion-yuan ABS issuance plan and China Life Asset Management's 510 million yuan plan have also received approval from the exchange. [para. 11]

For more details on this, reporter Han Wei can be contacted at weihan@caixin.com. [para. 12]