The National Financial Supervision and Administration Commission recently approved the third batch of 60 billion yuan of long-term investment reform pilot scale for insurance funds. This marks a deepening stage for the policy, which started at 50 billion yuan and expanded to 112 billion yuan. By the end of 2023, the balance of insurance funds in use had reached 27.2 trillion yuan, with bond investment accounting for 39.2% and stock and fund investment accounting for 12.4%. This structural feature is undergoing subtle changes during the reform pilot.
International Perspective
From an international perspective, the proportion of equity assets in the allocation of US life insurance companies has long remained at around 30%, while Japanese insurance funds hold nearly 40% of the market value of the constituent stocks of the Tokyo Stock Exchange Index through the “GPIF” model. In contrast, there is still room for improvement in the pricing power of insurance funds in China’s capital market. This expansion of the pilot program is not merely a quantitative change but rather the beginning of a qualitative transformation that triggers the reconstruction of the capital market ecosystem.
Capital Attributes and Long-Term Investment
The long-term nature of insurance funds is changing the “time discount rate” of A-shares. For instance, China Life Insurance recently increased its holdings of China Mobile’s H shares to 10.02%, with a holding period of more than five years. Ping An Life Insurance has invested in the Beijing-Shanghai High-Speed Railway through special products, with a holding period of up to 12 years. Such cases highlight the characteristics of patient capital.
Blackrock research shows that the average holding period for institutional investors has shortened from 2.5 years in 2000 to 0.7 years in 2022, while the average lock-up period for insurance fund pilot projects has reached 3 years. This difference in the time dimension has produced a unique market effect: when the annualized volatility of the CSI 300 Index remains within the range of 18% – 22%, the volatility of the stocks heavily held by insurance funds is generally lower than 15%. These long-term positions are forming a “valuation anchor” effect. For example, during the six years that CPIC held China Yangtze Power, the fluctuation range of the stock’s price-earnings ratio narrowed from 14 to 18 times to 16 to 17 times, reducing irrational market fluctuations.
Impact on Asset Pricing System
The impact of the reform pilot on the asset pricing system shows obvious structural characteristics. In the fixed-income sector, the allocation demand of insurance funds for 30-year Treasury bonds has driven their yield down from 3.8% in 2021 to 3.2% in 2023, and the spread with 10-year Treasury bonds has compressed to 35 basis points.
The equity market has witnessed a “dual-track” phenomenon: the median dividend yield of the top 50 stocks held by insurance funds by market capitalization reaches 3.8%, significantly higher than the overall market level of 2.1%. This choice preference is reshaping the valuation logic of the industry. For instance, Sany Heavy Industry, due to being selected as a target for multiple insurance asset management products, saw its capitalization rate of research and development expenses drop from 42% to 35%, but its price-earnings ratio increased from 12 times to 15 times, reflecting the market’s repricing of its true profitability. In the venture capital field, Taikang Asset Management invested in Wuxi AppTec through the “policy loan + equity investment” model, achieving an annualized return of 21%. This “fixed income plus” strategy has injected a new financing paradigm into emerging industries.
Behavioral Patterns of Market Participants
The 2023 annual reports of public funds show that the overlap between their top holdings and insurance funds has risen from 18% in 2020 to 29%. This “following effect” has strengthened the value investment transmission chain. However, it is also necessary to be vigilant against new market imbalances—the allocation of insurance funds in the top three industries (banks, electricity, and public utilities) accounts for 58%, which may lead to the bubble of “core assets.”
The experience of Japan shows that when insurance funds are overly concentrated in defensive sectors, the market’s innovation elasticity will decline. However, positive adjustments have emerged in the reform pilot programs. For instance, PICC Capital recently participated in the private placement of CATL, and New China Life Insurance has set up a special account of 5 billion yuan to invest in the STAR Market. These trends indicate that asset allocation is being optimized towards a “dumbbell-shaped” structure.
Macro Perspective
The essence of the expansion of the pilot program is an important institutional innovation in the direct financing system. The 401K plan in the United States promotes a positive cycle between pensions and the capital market. Its experience shows that for every 1% increase in the proportion of long-term funds, the market turnover rate will decrease by 0.8 percentage points.
The “closed operation + performance-linked” mechanism created by China’s pilot projects (such as Ping An’s five-year performance benchmark assessment) is fostering a genuine long-term investment culture. However, the institutional design still needs to be improved. Currently, the risk factor of equity investment by insurance funds is 0.35, which is still higher than 0.25 in the United States, suppressing the space for equity allocation. Data from the China Banking and Insurance Regulatory Commission shows that if the risk factor is adjusted to the international level, it is estimated that about 800 billion yuan of allocation potential can be released.
Future Outlook
This reform is writing a new paradigm for the development of the capital market. After the 300 billion yuan pilot funds are fully allocated, it is expected to drive a market follow-on investment effect of over 1.2 trillion yuan. But the true value does not lie in the scale itself but in the “time premium” it creates—only when investment decisions shift from quarterly assessment to three-year evaluation do enterprises have the courage to conduct cutting-edge technology research and development.
Just as Berkshire achieves long-term compound interest through insurance float, the Chinese capital market also needs such a “stabilizer.” The depth of future reforms should, while expanding the scale of pilot projects, be complemented by policies such as the development of derivative hedging tools and tax incentives, to build a complete long-term investment ecosystem, making insurance funds truly become the ballast stone for the high-quality development of the capital market.
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