On the evening of June 12th, New China Life Insurance announced that in response to the national policy of promoting the entry of medium and long-term funds into the market, the company plans to invest no more than 15 billion yuan to subscribe for the private fund shares initiated and managed by Guofeng Xinghua.
This fund type is an equity private securities investment fund, which will focus on the A+H shares of large listed companies that meet the conditions among the constituent stocks of the CSI A500 Index.
New Progress of Honghu Fund Phase III
The announcement shows that the private securities fund that New China Life Insurance intends to subscribe for is named Guofeng Xinghua Honghu Zhiyuan Phase III Private Securities Investment Fund No. 1 (provisional name, subject to the registration and filing with the Asset Management Association of China), with a duration of 10 years (which can be extended). The establishment scale of the fund is 22.5 billion yuan.
New China Life Insurance and China Life Insurance each plan to contribute 11.25 billion yuan to subscribe for private fund shares.
Journalists have learned from the industry that the total approved amount for the third phase of the Honghu Fund is 40 billion yuan. The potential investors include not only the “old partners” of New China Life Insurance and China Life Insurance but also several small and medium-sized insurance companies.
The announcement indicates that the investment scope of this fund will focus on the A+H shares of large listed companies that meet the conditions among the constituent stocks of the CSI A500 Index. The target company should have good corporate governance, stable operation and management, relatively stable dividends, and relatively good stock liquidity, which is in line with the long-term investment needs of insurance funds. New China Life Insurance also stated that the fund will adhere to the long-term investment philosophy and obtain stable dividend income through low-frequency trading and long-term holding.
Meanwhile, New China Life Insurance also stated that as of the date of the announcement, the company and relevant parties have not completed the signing of the contract for the subscription of fund shares. The content of the contract shall be subject to the formal contract finally signed by all parties. The establishment of a fund still needs to go through relevant regulatory procedures such as fund filing.
Several Insurance Companies Have Made Phased Layouts
Honghu Fund Phase III is part of the third batch of long-term investment pilot projects for insurance funds.
New China Life Insurance and China Life Insurance were among the first batch of pilot institutions. In the first half of 2024, they established a private securities fund with a scale of 50 billion yuan. By the beginning of March this year, all 50 billion yuan had been fully invested and implemented.
The total scale of the second batch of approved pilot projects exceeds 100 billion yuan. Currently, many institutions have made progress in promoting the establishment and investment of private securities funds. For instance, at the end of May, Taikang Life Insurance, as the sole holder, initiated the establishment of the Taikang Stable Journey (Wuhan) private Equity Fund by Taikang Asset Management, which completed the filing and registration.
The initial investment scale is expected to be 12 billion yuan. In early June, CPIC released the CPIC Zhiyuan No.1 Private Securities Investment Fund (provisional name) with a target scale of 20 billion yuan.In addition, the Hengyi Chiying (Shenzhen) private equity Fund, which was established by Ping An Asset Management and issued specifically to Ping An Life Insurance with an initial scale of 30 billion yuan, has also been approved recently. In May, Sunshine Insurance announced that Sunshine Asset Management is preparing to establish the Sunshine Heyuan Private Securities Investment Fund (provisional name), with a total scale of 20 billion yuan, which will be fully subscribed by Sunshine Life Insurance. The second phase of Honghu Fund, approved for establishment by China Life Insurance and New China Life Insurance, with a scale of 20 billion yuan, plans to invest in the market in the near future.
It is learned that China Post Insurance and its subsidiary China Post Insurance Asset Management have also been approved to participate in the third batch of pilot projects, with a scale of 10 billion yuan. Among the insurance institutions participating in the third batch of long-term investment pilot programs for insurance funds, in addition to large insurance companies and their asset management companies, some small and medium-sized insurance companies have also been added.
The Pace of Insurance Funds Entering the Market Has Accelerated
Industry insiders believe that such pilot funds mainly invest in secondary market stocks and hold them for the long term, which is conducive to expanding the “patient capital” in the capital market and improving the structure of capital supply in the capital market. The continuous advancement of the pilot program will help leverage the advantages of insurance funds and bring medium- and long-term incremental funds to the capital market.
For insurance companies, in addition to responding to the policy of medium and long-term funds entering the market, the pilot program can to a certain extent solve the bottlenecks and obstacles in the entry of insurance funds into the market. For instance, the accounting measurement methods under this framework help insurance companies smooth out the impact of equity market fluctuations on their income statements. Meanwhile, the pilot preferential policies in terms of solvency will also reduce the capital occupation and solvency consumption of insurance companies by equity investment.
In addition, through the expansion of the long-term stock investment pilot program, insurance funds have increased the proportion of equity asset allocation, which is conducive to alleviating the pressure of interest spread losses, better matching the long-term liability demands of life insurance policies, and easing the contradiction of maturity mismatch between assets and liabilities.
Several insurance companies have stated that they will take into account safety, liquidity, and profitability during their participation in the pilot program and look forward to further optimization and improvement of the long-term investment incentive mechanism.
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