China Life Asset Management has received regulatory approval for the third phase of its Honghu Fund, marking another strategic step in deploying insurance capital as long-term “patient capital” in China’s equity markets. The National Financial Regulatory Administration (NFRA) greenlit the fund on May 13, following two earlier phases launched since January. Phase I has already invested ¥50 billion across 42 A-share companies, while Phase II focuses on large-cap blue chips within the CSI 300.
The newly approved Phase III will target dividend-paying firms with yields above 3%, strong ESG ratings (AA or higher), and high liquidity, averaging daily turnover exceeding ¥100 million. Designed to reduce portfolio volatility by approximately 15%, the fund aligns with the State Council’s January directive to channel medium- and long-term capital into the stock market. Analysts note this approach could serve as a stabilizing force amid market fluctuations.
China Life’s phased deployment strategy has seen steady execution, with Phase II currently targeting 30-40 CSI 300 stocks in Q2 2024. Phase III, expected to mobilize an additional ¥30-50 billion in the second half of the year, incorporates stringent risk controls, including derivative overlays to cap drawdowns below 10% and five-year lock-up periods matching insurers’ liability durations.
The cumulative impact of the three funds could absorb around 1.2% of A-shares’ free float, providing much-needed stability. Recent NFRA reforms further incentivize such investments by lowering capital charges for qualifying equity holdings. Phase I has already outperformed the CSI 300, delivering a 4.8% annualized return compared to the index’s 2.1% since inception.
Professor Zhou Ming of Renmin University praised the initiative, stating, “China Life’s scaled approach balances yield demands with market stewardship, fundamentally reshaping corporate engagement through a 10-year lens.” The firm plans to finalize custodian and audit partnerships by June, with Phase III investments set to begin by Q3.
Looking ahead, China Life aims to expand co-investments with pension funds, positioning insurance capital as a cornerstone of China’s capital market reforms. Industry peers, including Ping An AM and CPIC AM, are expected to replicate this model in 2024-2025, offering a blueprint for aligning institutional investment horizons with national financial stability goals.
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