China Life, YF Life target private markets for returns, diversification
Private markets offer a diverse range of asset classes that insurers can use to meet multifaceted financial goals, which often extend beyond simple return metrics.
Addressing the $51 billion life insurer’s needs, Courtney Wei, head of investments at China Life Insurance, said insurers must balance income statement and balance sheet considerations, account for capital and evolving regulatory requirements, and focus on both short-term performance and long-term returns for policyholders.
“This complexity necessitates a focus on risk-adjusted returns and capital efficiency,” Wei told the panel at AsianInvestor’s 15th Insurance Investment Briefing in Hong Kong on September 5. “Each category is different and we utilise different asset classes to match our financial goals.”
With interest rates transitioning from rising to potentially falling, Wei noted that private credit is particularly appealing for its ability to generate high short-term yields.
“We find ourselves investing in private credit markets for relatively high short-term yield, and private equity markets to achieve higher money multiples over the longer term,” Wei said.
China Life’s strategy is highly research-driven, aligning with its broader mission of balancing risk and reward over multiple time horizons, according to Wei.
“We look at different asset classes, the macro environment, and decide which ones have better fundamentals. We consider where we are in the cycle, especially the interest rate cycle. We're probably at a transition from rising interest rates to potential rate cuts,” she added.
COMPLICATED ENVIRONMENT
Private markets also offer both diversification and a tactical means of navigating uncertain economic conditions, according to YF Life Chief Investment Officer Dennis Luk.
With nearly $10 billion in assets under management, Hong Kong-based YF Life acknowledged the long-standing importance of private markets in the firm’s portfolio, particularly in driving diversification and higher returns.
YF Life
“We've had alternative asset classes in our portfolio for more than 15 years. It's an asset class we're quite familiar with and use it to generate extra return while keeping our portfolio diversified,” Luk told the AsianInvestor audience. “
We're in a complicated macro environment right now, especially with interest rates. Alternative assets remain key for generating returns.”
Within alternatives, YF Life maintains a diversified approach.
“Secondary markets look attractive, and private credit has become even more appealing in the past year. Private equity may be under some pressure, but some managers continue to generate extra returns and replicate their success,” he said.
Luk highlighted manager selection as being critical to the success of the life insurer’s alternatives strategy.
“The key is finding the best managers or better-performing sub-strategies. In private credit, we may focus more on the middle market or lower mid-market opportunities, slightly favouring them over the upper market, but we still allocate to top-tier managers in the upper mid-market," he said.
GROWTH LEVERS
Gene Miao, senior investment strategist at Churchill Asset Management, provided insights from the perspective of an alternative asset manager specialising in private credit and private equity.
Churchill Asset Management
A boutique under the umbrella of US retirement firm TIAA, Churchill manages approximately $50 billion. Of that, $25 billion are allocated to alternative strategies for TIAA’s general account, according to Miao.
“To frame it, TIAA, being an insurance company for educators in America, has a portfolio with about 85% in fixed income and 15% in alternatives. The fixed income portion includes liquid investments like investment-grade bonds, high yield, and other public instruments,” he explained.
"In alternatives, which interestingly includes real estate and infrastructure along with our other strategies, these investments are actually represented as a separate line item on the balance sheet," Miao said.
Private credit offers a particularly compelling opportunity, Miao said, given a structural shift in the US lending market where banks have retreated from buyout financing and leveraged lending.
“In general, for direct lending within private credit, it's a big spectrum. We focus on direct lending, a space historically dominated by banks in the US, but banks have moved away over the last 30 years,” said Miao. “Now, alternative asset managers like us do buyout financing and leveraged lending. This structural opportunity will continue to grow, and the providers of capital are likely to concentrate down.”
On the equity side, Miao also pointed to the growing appeal of private equity secondaries, particularly general partner-led secondaries and continuation vehicles.
By leveraging middle-market opportunities within private credit and private equity, insurers can find paths to enhancing their portfolio’s diversification and return potential, he said.