Key Concerns for Foreign Capital Entering the PRC Insurance Funds Market

Summary

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• The attributes of insurance funds make them attractive players for the Chinese markets
• Such funds are dual-regulated in China in order to mitigate risk
• Among other things, stringent capital and assets-under-management requirements apply
• Despite the regulatory complexity, the market presents abundant opportunities to foreign investors in this sector

Insurance funds, with their attributes of high volume and long cycle, are scarce long-term capital in the Chinese financial markets and an essential driving force for private funds. In recent years, private funds allocated by insurance companies (including insurance group (holding) companies) in China have taken shape and have been increasing in number year-on-year. Data shows that, by the end of 2021, among the fundraising sources of private funds raised and established in mainland China, paid-in capital sourced from insurance funds had reached 4.5% of the total capital pool: a total amount of RMB 4.37 trillion. However, comparing to more developed countries such as the United Kingdom and the United States, where insurance funds account for more than 6% of all private funds, Chinese insurance funds still lag behind in terms of allocation to private funds. On the other hand, with the growing demand for foreign capital to allocate to Chinese assets and the continued high-level opening of the financial industry in the country, more and more foreign capital is becoming active in China's capital markets. In this context, it is likely that cooperation between foreign capital and insurance funds in private funds will continue to be deepened.

"Safety" is the paramount principle for private equity investment by insurance companies. Private equity investment activities of insurance companies are subject to dual regulation by the China Banking and Insurance Regulatory Commission (CBIRC) and the China Securities Regulatory Commission (CSRC). They also fall under the purview of the Insurance Asset Management Association of China (IAMAC) and the Asset Management Association of China (AMAC), which are self-regulatory organizations supervised and administrated by the CBIRC and CSRC, respectively. Compared with other types of investors, private funds invested by insurance funds and their fund managers are required to comply with numerous rules and regulations regarding insurance capital.