Private equity open for Chinese insurers

Chinese insurance companies can now invest into foreign private equity funds after the China Insurance Regulatory Commission (CIRC) issued rules allowing overseas investment.

Prior to 12 October Chinese insurance companies were required to gain regulatory approval for every private equity investment outside China, and this process was opaque, according to a client memo from law firm SJ Berwin.

However, there are certain qualifying criteria for firms who wish to seek capital from Chinese insurers such as Ping An and China Life, who are strong private equity co-investors and have committed to China-based funds in the past.

Chinese insurers will only be able to invest in funds which have a total size of at least $300 million and where the manager has accumulated assets under management of at least $1 billion – with investments in early stage or venture funds not allowed.  

Furthermore the net asset value of the manager must be at least $15 million, and they must have more than 10 professional investment staff.  There are also rules about the experience of the staff and a need for adequate governance procedures and internal controls.  

This news is likely to be well received by the industry, especially large managers who are on the hunt for new channels of capital. Last month Chinese mutual funds were also given the green light to invest in RMB-denominated private equity vehicles. 

However the changes to the insurer rules are expected to have a far greater impact on the private equity landscape. The rules would permit Chinese insurers to allocate up to 15 percent of their total assets in private equity, which could mean as much as $144 billion is available for outward investment, based on 2011 numbers published by CIRC.