Insurance funds "shift gears"! Shrink debt investments and focus on equity investments

As an important bridge linking insurance funds with the real economy, the focus of insurance asset management companies is undergoing changes, reflecting adjustments in how insurance funds serve the real economy.

Data shows that in the first half of this year, the number and scale of registered debt investment plans by insurance asset management institutions continued to decline, while equity investment plans and private equity funds saw significant increases. At the same time, asset-backed plans and other asset securitization businesses also continued to grow. These types of businesses are all alternative investments that directly target real enterprise projects.

Industry insiders indicate that in the process of transitioning from old to new growth drivers, the investment methods of insurance funds must keep pace with the times, continuously innovating under the trends of the era and market demands. Currently, insurance asset management is focusing on two major areas: equity investment and revitalizing existing assets, which not only supports new economic growth drivers but also enhances its own development momentum.

Decline in Debt Plan Registrations Continues

According to official industry data obtained by Securities Times·Broker China, in the first half of this year, insurance asset management institutions registered a total of 137 debt investment plans (referred to as "debt plans"), with a registered scale of 212.2 billion yuan, representing a year-on-year decrease of 23% and 24.5%, respectively. This marks the fourth consecutive year of declining new business volume for debt plans since 2022.

Debt plans are the earliest alternative investment business developed by insurance asset management, linking insurance funds on one hand and meeting the financing needs of infrastructure projects on the other. This has been the main business of insurance asset management companies for over a decade. The peak year for debt plan registrations was 2021, when the registered scale exceeded 960 billion yuan, with 528 registrations.

In 2022, the registration volume of debt plans declined for the first time, with a registered scale of 871.2 billion yuan, down 9.9% year-on-year; the number of registrations was 485, a decrease of 8.1% year-on-year. In 2023, the decline continued, with 444 registered debt plans and a registered scale of 735.7 billion yuan. In 2024, the registration volume further dropped to 375 plans, with the scale decreasing to 617.7 billion yuan.

Insurance asset management professionals analyzed to Securities Times·Broker China that the gradual decrease in debt plan business in recent years is mainly due to: first, a reduction in new infrastructure and debt financing demand projects; second, a loose funding environment, where debt plans are not advantageous in terms of financing costs compared to bank loans; third, from the perspective of insurance funds, the yield of debt plans has significantly declined in recent years, making suitable assets more scarce.

Industry insiders noted that the average yield of newly registered debt plans has dropped to the level of "3%+", with yields above 4% becoming rare, and some high-quality asset projects seeing yields drop to "2%+".

Transition to Asset Securitization Business

It is reported that if the operating entities of existing infrastructure projects issue debt plans, the raised funds are generally used for construction costs of infrastructure projects, replacing existing debts, and supplementing the operating capital of financing entities, while new project fundraising is used for project construction, etc.

From the perspective of newly registered debt plans, an increasing amount of funds is directed towards infrastructure projects that are green, new infrastructure, and new economy-related projects, such as wind and solar power infrastructure, the Internet of Things, data centers, etc For existing infrastructure, insurance asset management companies are gradually developing asset securitization businesses around the demand for revitalizing existing assets.

Currently, the asset securitization business of insurance asset management mainly consists of two types: one is asset-backed plans, which are widely developed by insurance asset management; the other is the exchange-traded asset securitization (ABS) and real estate investment trust (REITs) business approved for pilot by five insurance asset management companies including China Life Asset Management. The basic business logic is that insurance asset management institutions act as trustees to establish asset-backed plans, using the cash flow generated by the underlying assets as repayment support, and issuing income certificates to qualified investors such as insurance institutions.

From the perspective of asset-backed plans, with the transition from a registration system to a filing system in September 2021, this type of business has ushered in rapid development. According to statistics from the China Insurance Asset Registration and Custody Co., Ltd., the scale of registered asset-backed plans broke the trillion yuan mark for the first time in 2021, reaching over 150 billion yuan, exceeding 300 billion yuan in 2022, and increasing to nearly 460 billion yuan in 2023. In 2024, the number of registered asset-backed plans continued to increase to 103, with a registration scale of nearly 420 billion yuan, still at a high level. In the first half of this year, this type of business continued to grow rapidly.

Accelerating capacity building in asset securitization business is a consensus in the insurance asset management industry. A chief investment officer of a large insurance company stated that past debt investments were more based on credit analysis, mainly focusing on the creditworthiness of the borrower, but now there is an increasing emphasis on the "asset" level, highlighting the cash flow of the underlying assets. This is a relatively new topic for insurance asset management institutions and insurance capital.

Rapid Growth of Equity Investment Business

While the debt plan business is shrinking, the equity investment business of insurance asset management has achieved rapid growth.

The equity investment business of insurance asset management companies mainly includes equity investment plans and private equity funds. Data obtained by Securities Times·Brokerage China reporters show that in the first half of the year, insurance asset management institutions registered a total of 11 equity investment plans, an increase of 6 plans year-on-year, with a growth rate of 120%; the registration scale was approximately 26.8 billion yuan, a year-on-year increase of 188%. Three insurance private equity funds were registered, with a scale of approximately 25 billion yuan, representing year-on-year growth of 50% and 524.9%, respectively.

In recent years, newly established equity products by insurance asset management companies have gradually expanded. According to data from the official website of the China Insurance Asset Management Association, the 11 equity plans were registered by 8 insurance asset management institutions. Among them, China Insurance Investment Company registered 3 plans, namely China Insurance Investment - Rongrui Equity Investment Plan, China Insurance Investment - Xinyun Equity Investment Plan, and China Insurance Investment - Zhihui Equity Investment Plan; Zhongyi Asset registered 2 plans, namely Zhongyi - State Grid Xinyuan Equity Investment Plan and Zhongyi - State Power Binhai Equity Investment Plan; Huaxia Jiuying Asset, China Life Investment, Minsheng Tonghui Asset, CMB International Asset Management, PICC Capital, and Taikang Asset each registered 1 equity plan.

The three insurance private equity funds registered in the first half of the year are Taibao Capital - Taibao Zhanxin M&A Private Fund (Shanghai) Partnership (Limited Partnership), Ping An Infrastructure - Ping An Silver Age Equity Investment Fund (Beijing) Partnership (Limited Partnership), and Taibao Capital - Taibao Xinwen Phase I Private Investment Fund (Shanghai) Partnership (Limited Partnership) In terms of investment direction, insurance funds leverage their advantages of large scale, long cycles, and stable sources, resulting in an increase in projects landing in areas such as the financial "five major articles," new productive forces, and the new economy. The newly registered equity plans and insurance private equity funds mentioned above also generally continue this trend.

China Life Asset Management has ranked first in the industry for several consecutive years in the number of equity plans established. A relevant person in charge of the company stated in an exclusive interview with Securities Times·Broker China that China Life Asset Management has positioned equity business as one of the important asset allocation directions for the future, and it is expected that equity investment will become the core competitiveness and a new high ground for investment competition among insurance asset management institutions.

Recently, Zhao Hui, Vice President of China Life Asset Management, mentioned in an interview with Securities Times·Broker China that the transition process of new and old driving forces in the economic development model means that the original liability-driven era has shifted to an equity-driven era. In the process of serving national strategies and supporting the real economy, the investment methods of insurance funds also need to adapt to the new requirements of the times.

"The main difficulties in carrying out equity investment plans lie in the selection of quality assets, transaction structure design, and post-investment tracking management," the aforementioned person in charge of China Life Asset Management stated. The liability characteristics and rigid costs of insurance funds determine that their risk tolerance is lower compared to other types of funds, with higher requirements for stable returns during the investment period. Due to the relative scarcity of quality projects and intense competition among various parties, it is essential to find suitable quality assets and design transaction structures that match the preferences of insurance funds, which is also the core competitiveness of equity investment business managers.

Author of this article: Liu Jingyuan, Source: Broker China, Original title: "Insurance Funds 'Shift Gears'! Shrink Debt Investment, Focus on Equity Investment"

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