Fubon Life to add $4bn in foreign assets

The Taiwanese insurance company is planning to boost its exposure mainly to fixed income, with a focus on North American debt. It has also been increasing its property allocation.
Fubon Life to add $4bn in foreign assets

Taipei-based insurer Fubon Life plans to raise its overseas allocation by another five percentage points, with a focus on North American investment-grade bonds, in line with its recent allocation trend.

The firm, which has 57.7% of its NT$2.866 trillion ($88 billion) portfolio in overseas assets, has in the past year raised its allocation to foreign real estate and bought overseas bonds to replace lower-yielding Taiwan debt, with a view to boosting returns. The insurer did not specify which allocations had fallen to fund the increase in offshore investments.

These moves come as domestic rival Cathay Life – which also heavily favours foreign debt – builds its own exposure to such assets, as reported.

Meanwhile, Fubon Life does not have a strong appetite for offshore high-yield bonds, said senior vice president Raymond Lin at the firm’s first-quarter investor conference yesterday.

The firm outsources high-yield bond investments to external managers, a sell-side analyst told AsianInvestor, which account for about 5% of its total offshore AUM. Fubon Life did not respond to requests for comment on this by press time.

Overseas fixed income accounts for almost half (49.1%) of the overall portfolio. That’s because the insurer looks for recurring yields from its foreign portfolios, said the analyst, who requested anonymity. Recurring return rose to 3.14% (post-hedging) from 2.98% during the same period, mainly due to overseas fixed income and property investments, said a company spokeswoman.

Boosting recurring yield remains Fubon Life’s priority. While there has been a significant recovery in financial markets since February, the insurer does not envisage exceptionally strong global growth, Lin said. Consequently, it will continue to overweight foreign investment-grade bonds, with a focus on North American multinational corporations and banking institutions.

As of the end of March, Fubon Life’s overseas fixed-income mix comprised 55.2% corporate bonds, 38.8% financial bonds, 2.8% government bonds and 3.2% other assets. By region, 60.9% was issued in North America, 19.2% in Europe and 19.9% in Asia or other regions.

In respect of real estate, Fubon increased its investment in foreign commercial property in 2015. As of end-March, it had a 7.3% allocation to real estate, up from 6.3% a year earlier. Overseas commercial property can yield 4%-5%, the sell-side analyst told AsianInvestor, close to double the 2%-3% returns available from domestic markets.

The insurer has already made substantial direct property purchases in London. Fubon Life bought Madame Tussauds waxworks museum for €332.5 million ($389 billion) in 2015 and the year before paid €185 million for Bow Bells House and €138.8 million for One Carter Lane.

Fubon Life also has investments in offshore hedge funds via external managers, the analyst told AsianInvestor. The combined exposure to hedge fund and high-yield bond mandates accounts for 5%-10% of the firm’s overseas AUM, he estimated.

As for equities, Lin said Fubon Life would be “careful, cautious and selective”. The firm’s allocation target is 15% of total AUM, which is where it stood as of end-March (7.8% in domestic equities, 6.6% in overseas equities).

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