The second batch of pilot long-term stock investments by insurance funds has "landed," with 52 billion yuan of long-term capital about to enter the market

The long-awaited second batch of pilot projects for insurance funds' long-term stock investments has been "launched" just before the Spring Festival.

On the evening of January 26, relevant news was confirmed, with the Financial Regulatory Administration approving the second batch of long-term stock investment pilot projects, with a scale of 52 billion yuan. China Pacific Life Insurance Co., Ltd., Taikang Life Insurance Co., Ltd., Sunshine Life Insurance Co., Ltd., and related insurance asset management companies have been authorized to participate in the pilot through contractual funds to carry out long-term stock investments.

China Pacific Insurance previously mentioned in response to Wall Street News regarding "what considerations and plans it has for participating in the long-term stock investment pilot for insurance funds": Since the establishment of the first batch of pilot funds, operations have been smooth, and investment performance has been excellent. This achievement not only demonstrates the strength and capability of insurance funds as long-term investors in stock investments but also boosts market confidence in stock market investments. China Pacific Insurance continues to be optimistic about increasing the intensity of long-term stock investments and is actively researching participation.

So, referring to the example of the first batch of long-term investment pilots, how will the funds for the second batch of insurance capital long-term stock investment pilots enter the market through several steps, and what types of companies will be the focus of investment?

Establish Relevant Entities

Based on the experience of the first batch of insurance funds' long-term stock investment pilots, the first step for pilot funds to enter the market is to establish relevant investment entities.

The pilot cases of Xinhua Insurance and China Life Insurance in the first batch show that both parties established at least two joint venture institutions.

One is the funding entity—Honghu Zhiyuan (Shanghai) Private Investment Fund Co., Ltd. (hereinafter referred to as "Honghu Zhiyuan"), jointly established by Xinhua Insurance and China Life Insurance, with a registered capital of 50 billion yuan.

The other is the management entity—Guofeng Xinghua (Beijing) Private Fund Management Co., Ltd., with a registered capital of 10 million yuan, jointly initiated by Xinhua Insurance's asset management subsidiary Xinhua Asset and China Life Insurance's holding subsidiary Guoshou Asset, each contributing 5 million yuan.

In addition, before and after the establishment of these investment entities, the relevant companies may also need to complete procedures such as business registration and filing with the Asset Management Association of China.

Funds Received

The 50 billion yuan registered capital for the first batch of insurance funds' long-term stock investment pilot is a total target, to be received in batches.

According to a proposal at Xinhua Insurance's 2024 shareholders' meeting, it is agreed that Xinhua Insurance and China Life Insurance will contribute in cash in yuan for the first batch of insurance funds' stock investment pilot, in principle, completing all actual contributions within one year from the date of the fund's establishment, which can be adjusted based on decisions made by the fund manager's investment decision committee. The specific amounts and timing of contributions for each phase will be determined by the fund management company based on the investment and operational needs of the fund In fact, the relevant funds have been allocated very quickly. According to information released by China Life in October 2024, the Honghu Fund, jointly initiated by the company and NCI, has accumulated investments of 32 billion yuan since its launch on March 4, 2024. The fund has a total scale of 50 billion yuan, and as of the end of September, the paid-in capital reached 32.01 billion yuan, with significant investment results achieved.

Entering the Market to Hold Relevant Stocks

After the capital and personnel are in place, the relevant investment entities will arrange for funds to enter the market.

The announcement indicates that the investment directions set by the first batch of pilot funds include:

First, stocks of listed companies, with investment methods including but not limited to continuous bidding, subscription of non-publicly issued stocks (A-shares)/placement (Hong Kong stocks), rights issues (A-shares)/offerings (Hong Kong stocks), block trades or agreement transfers with single or multiple trading counterparties, priority placement of convertible bonds, and securities lending through transfer and financing.

Second, cash management investment products such as money market funds, bank deposits, and reverse repurchase agreements for government bonds.

The relevant proposal also mentions that "when investing in the stock market, the fund will choose high-quality listed companies with large market capitalization, good liquidity, and high market influence."

According to public information, the first batch of pilot investment entities, Honghu Zhiyuan Fund, has publicly held shares in two listed companies.

One is Yili Co., Ltd., which first appeared in the top ten shareholders list of Yili Co., Ltd. during the 2024 mid-year report, holding 11,937,660 shares. In the 2024 third-quarter report, the shareholding remained unchanged.

Based on Yili Co., Ltd.'s closing price on January 26, the latest market value of this batch of shares exceeds 3.294 billion yuan (assuming the shareholding remains unchanged).

In addition, Honghu Zhiyuan also increased its holdings in Shaanxi Coal and Chemical Industry in the third quarter of 2024. As of the end of the third quarter of 2024, Honghu Zhiyuan held a total of 70,162,300 shares of Shaanxi Coal and Chemical Industry.

If the shareholding remains unchanged, based on the latest closing price, Honghu's holdings in Shaanxi Coal and Chemical Industry have a market value exceeding 1.5 billion yuan.

From the actual shareholding situation, it is evident that insurance funds tend to invest long-term in high-quality companies with large market capitalization, good liquidity, and high dividend yields