China's longest line of funds began to buy real estate
Text | Little Lou Fish
Edit | Yang Xuran
Following the notice issued by the State Administration of Financial Supervision in September to reduce the risk factor of equity investment of insurance companies, the Ministry of Finance recently issued the Notice on Guiding Long-term and Steady Investment of Insurance Funds and Strengthening the Long-term Assessment of State-owned Commercial Insurance Companies.
Regarding the main purpose of the "Notice", the relevant person in charge of the Ministry of Finance bluntly said that it is to enhance the matching of assets and liabilities, encourage insurance funds to make long-term investment, stable investment, and value investment, guide state-owned commercial insurance companies to operate steadily for a long time, and "play the role of medium and long-term funds as market stabilizers and economic development boosters".
Insurance asset management institutions are currently one of the largest institutional investors in the mainland bond market and stock market. At the end of the third quarter of this year, the total assets of mainland insurance companies were 29.6 trillion yuan, a year-on-year increase of 10.8%. The balance of insurance funds was 27.5 trillion yuan, a year-on-year increase of 10.9%.
As the longest source of investment funds in China's capital market, the flow of 27.5 trillion yuan of insurance funds will undoubtedly lead the investment trend of the market and affect the pattern of China's capital market.
01 Real estate market
As a kind of long-term investment capital (pursuing projects that can be operated and held for a long time and have sustainable returns), insurance capital has been deeply bound to the real estate industry for many years, and has become a big financier behind the real estate industry by participating in the private placement of real estate enterprises.
Taking Ping An as an example, Ping An Real Estate and other subsidiaries have invested in more than 400 real estate companies, including Vanke, Longfor, Landsea, Binjiang, Yanlord and other leading brands, and once became the majority shareholder of Country Garden.
With the frequent thunderstorms of leading real estate companies in the past two years, most of the insurance companies have reduced their holdings of real estate stocks, such as Ping An of China, which currently does not account for a high proportion of investment in the real estate sector. Although they seem to be staying away, insurance companies have not really given up on the real estate market.
For a long time, insurance companies can be roughly divided into three ways to participate in real estate investment: one is to purchase equity and become a direct financial investor, the other is to invest indirectly in real estate through investment bonds or equity plans, and the third is to acquire land as a sole proprietorship or joint venture and subsequently cooperate with real estate enterprises for development.
Compared with financial investors who have little say in the progress of the project and the supervision of funds, today's insurance companies are more willing to directly control the land to develop real estate projects, and they have also shown considerable enthusiasm in the bulk real estate transaction market.
According to the statistics of Ruihe Think Tank, since the beginning of the year, AIA Life, Ping An Life, Taikang Life, CCB Life, Taibao Life, China Post Life, Dajia Insurance and other insurance companies have made large real estate investments.
For example, China Post Life Insurance took over Joy City's COFCO Land Plaza in Beijing for 4.246 billion yuan; a subsidiary of Chinese Life took over 51% of the equity of Zhuhai Shimao New Field for 3.91 billion yuan; Dajia Insurance replaced Dalian Wanda Commercial Management and became the largest shareholder of Shanghai Wanda Plaza Real Estate Co., Ltd.; and AIA Life contributed more than 7.4 billion yuan to the 89 Neighborhood Project on the North Bund in Shanghai.
The investment logic behind it is that insurers are optimistic that commercial real estate in the core areas of first- and second-tier cities will still have strong room for appreciation in the future, and choose to buy at the bottom when market sentiment is sluggish and real estate prices are down. In addition, insurance funds will also buy asset varieties with stable returns and less risk, such as shopping mall REITs.
In addition to commercial real estate, health care real estate will also be the key direction for insurance companies, especially life insurance companies, to increase their holdings of real estate. In the context of the accelerated aging of the population and the decreasing number of newborns, the demand side of health care services will inevitably usher in large-scale growth.
Suppliers targeting the silver economy have also begun to focus on launching services, and from the second half of 2022, insurance companies have significantly accelerated the pace of layout of the health care track.
For example, PICC Life launched the health care service brand "Warm Heart Suiyue", ICBC AXA Life Insurance launched the professional elderly care service brand "Shenghua Nian" featuring "care, family, and strict selection", and Taiping Life Insurance set up a wholly-owned subsidiary, Taiping Health Pension (Guangzhou) Co., Ltd., and so on.
For insurance companies, the development of the health care industry is conducive to providing extended product differentiation services, and better selling life insurance and other financial products by providing customers with full life cycle protection services. The most representative data is that the quality health care community represented by real estate enterprises and insurance capital is expanding rapidly, with an increase of 27% compared with 2022.
02 High-tech enterprises
While insurers are accelerating their exit from real estate stocks, their focus and investment in technology companies is increasing.
According to Choice data, since the first trading day after the National Day, insurance institutions have surveyed a total of 651 A-share listed companies, and most of the more popular companies are from electronics, medicine and biology, computers, machinery and equipment and other industries.
This kind of activity seems to be incompatible with the traditional perception of insurance qualifications, but it is closely related to the "Notice on Optimizing the Regulatory Standards for the Solvency of Insurance Companies" issued by the State Administration of Financial Supervision in September.
According to the notice, in order to guide insurance capital to support the stable and healthy development of the capital market, the risk factor for insurance companies investing in the constituent stocks of the CSI 300 Index has been adjusted from 0.35 to 0.3, and the risk factor for investing in ordinary stocks listed on the Science and Technology Innovation Board has been adjusted from 0.45 to 0.4.
In the past, insurance funds often preferred stocks with large market capitalization, low valuations and stable performance, and most of the holdings had the characteristics of high dividends. Today's adjustment of risk factors has undoubtedly broken many shackles for long-term funds such as insurance funds to invest in technology innovation companies, making them more able to withstand the financial security pressure brought about by the fluctuation of the valuation of technology stocks.
After adjusting the assessment cycle, the Insurance Asset Management Association said that holding long-term funds is the advantage of the insurance asset management industry over other industries, and insurance asset management institutions should guide more funds to flow to scientific and technological innovation, advanced manufacturing, green development, inclusive finance and other fields.
For example, Ping An Group said that in the future, it will increase the allocation of the capital market and focus on high-quality and profitable enterprises, especially investment targets that are in line with the direction of national industrial development, China's high-quality development, and the valuation system with Chinese characteristics.
Taikang Asset Management said that it expects to obtain alpha in the process of steady economic recovery and capture the dividends released by the stock market, because "in many areas such as technology and energy consumption, structural bright spots continue to emerge." ”
In addition to the secondary market, the primary market represented by equity investment has also become more and more important to insurance companies, after all, the excess returns brought by the growth of enterprises for a long time are very considerable, and at the same time, it can also respond to the call of government departments for financial institutions to support the development of the real economy and strategic emerging industries.
In 2022, the Insurance Asset Management Association registered a total of 23 equity investment plans with a scale of 57.715 billion yuan, an increase of 64.29% and 8.76% year-on-year, respectively. In terms of equity investment, the total equity investment plan of insurance funds has reached 444.719 billion yuan, and by the end of April 2023, this figure has increased to 458.653 billion yuan.
Although the financial strength is abundant, the risk appetite of insurance LPs is often low, and most insurance funds prefer GPs with excellent performance and state-owned background institutions when choosing GPs, and in the investment industry, they will mostly favor related industries that are synergistic with the insurance business industry, such as institutions related to the medical and health field.
With the change of regulatory policies, the investment of insurance LPs may be more diversified.
However, in recent years, there are also some chaos behind the boom in equity investment of insurance capital, and many insurance institutions have achieved control or equity participation in non-insurance institutions through direct equity investment or fund investment, forming complex equity relationships and nested transaction structures, and may even produce illegal investment behaviors.
It is precisely for this reason that the relevant departments will organize and carry out the investigation of the equity investment of various insurance group (holding) companies and insurance companies in order to implement "penetrating" supervision.
03 Diversified investment
In the past 20 years of development, insurance asset management has evolved from serving the main business of insurance to an important participant in the competition of the large asset management industry, and has gradually formed a balanced investment style that "takes into account the short-term and long-term, balancing the relative and the absolute", and an investment pattern of bonds and fixed income varieties, supplemented by equity products.
Under the expectation of long-term low interest rates, long-term treasury bonds with tax exemption of interest income are extremely valuable, and bonds have indeed become the main flow of new insurance funds. According to the statistics of the Securities Times, the investment in insurance funds and bonds has increased by 1.7 trillion yuan since the beginning of this year, and the proportion has risen to a new high in the past ten years.
In addition to investing in bonds, leading insurance companies are also actively expanding their capital replenishment channels through the issuance of capital supplementary bonds, perpetual bonds and other bonds, so as to make themselves more capable of meeting strict capital regulatory requirements to maintain the company's operating health and the stability of dividends.
Since the beginning of this year, 15 insurance companies have issued bonds, with a total scale of more than 70 billion yuan. If the total amount of Chinese Life Insurance does not exceed 35 billion yuan in the recent successful issuance of capital supplementary bonds, this figure will exceed the 100 billion mark, far exceeding the scale of 22.450 billion yuan of bonds issued by insurance companies last year.
After replenishing the core capital, insurance companies will have more ability and motivation to make equity investments and alternative investments to help solve the problem of "asset shortage" and realize the diversified income of insurance capital.
As one of the alternative investment tools for insurance funds to invest in the real economy, asset-backed plans (i.e., "ABS") have maintained rapid growth in number and scale in recent years. According to the data on the official website of China Baodeng, 71 insurance asset-backed plans have been registered since the beginning of this year, with a cumulative registration scale of about 360 billion yuan, and the number and scale of registrations have reached a record high.
In terms of the number of registered products, large insurance asset management companies such as Ping An Asset Management, Taikang Asset Management and China Life Investment, as well as small and medium-sized insurance asset management companies such as Centennial Asset Management, Sun Life Everbright Asset Management and Minsheng Tonghui Asset Management have all shown high enthusiasm for the ABS market.
A few days ago, the State Council also approved the "Work Plan for Supporting Beijing to Deepen the Construction of a Comprehensive Demonstration Zone for the Expansion and Opening-up of the National Service Industry", exploring and supporting insurance asset management companies to issue RMB denominated asset management products of a reasonable scale overseas under the premise of account independence and risk isolation.
In the context of the continuous downward trend of interest rates, the insufficient supply of desirable assets, the rigid constraints on the cost side of the liability side and the increasing pressure on the investment side, it is of great practical significance for the development of insurance companies to broaden the source of income and improve the return on assets through insurance asset management.
Because after the scheduled interest rate of life insurance products switched from 3.5% to 3.0%, the industry situation faced by insurance companies is that the five major listed insurance companies (Chinese Life, Ping An of China, China Taibao, Xinhua Insurance, and Chinese Insurance Company) achieved a total net profit of 176.31 billion yuan in the first three quarters, a year-on-year decrease of 17.8%. If you look at the third quarter alone, this figure is down 61% year-on-year.
As the longest source of investment funds in China's capital market, obtaining sustainable and stable investment returns has always been the core goal of insurance companies and insurance asset management investment capacity building, regardless of changes in the times and policies.