Taiwan Life to double alternatives allocation

The Taipei-based insurer, with $35 billion under management, plans to make its first moves into private equity co-investment and foreign property.
Taiwan Life to double alternatives allocation

Taiwan Life plans to double its exposure to alternative assets this year, including making its first moves into private equity co-investments and foreign property, in light of widespread negative interest rates on bonds and high global stock valuations.

This will see the insurer raise its allocation to a little over 1% of its NT$1.1 trillion ($35 billion) portfolio from its current 0.5%, chief investment officer Alex Liu told AsianInvestor

The firm is closely monitoring the volatility in Europe following Britain’s June 23 vote to leave the EU, and planning to buy UK property when it feels the market is near the bottom. “When the market is volatile and price mismatch occurs," Liu said, "that’s a good time for long-term investors like us to make investments."

It also intends to invest more in buyout, infrastructure and real estate funds. The firm is targeting a net internal rate of return of at least 10% for infrastructure funds and real estate funds and mid-teens to 20% for buyout PE funds.

“We don’t aim for excessively high returns, but long-term and stable returns,” Liu said.

Taiwan Life already holds infrastructure, property and private equity funds (credit, buyout and IT strategies), as well as real estate in Taiwan. It hasn’t invested in private loan funds, as there are not many such products available in Asia yet, noted Liu.

The insurer considers alternatives attractive, he said, because as of June 30 around $12 trillion of government bonds globally were offering negative yields, and global equity valuations are high.

The firm's increasing allocation to alternatives reflects a trend among other Asian insurers, such as China Life, Ping An, Fubon Life and several in Japan, as well as other types of institutions in the region.

Taiwan Life is a wholly owned subsidiary of CTBC Holding, following the merger of CTBC Life Insurance and Taiwan Life in January this year. Before the merger, CTBC Life had made three co-investments, Liu said, and now Taiwan Life is eyeing such opportunities.

Meanwhile, Liu said Brexit had not had much direct impact on the firm’s investments, because the firm did not have much exposure in Europe – only some senior debt issued by European financial firms. And the current volatility in that market is unlikely to lead to defaults on these debts, he added.

As of June 30, some three-quarters (73.9%) of the firm’s AUM was in fixed income, above all overseas fixed income (57.6% of total AUM). The rest of the portfolio is 7.7% in equities (3.3% domestic, 4.4% overseas), 4.5% in mortgages, 4.4% in real estate, 4.2% in deposits and cash equivalents, 3.3% in mutual funds (2.3% foreign, 1% domestic) and 2.1% in policy loans. Liu did not clarify where infrastructure and private equity fell under this breakdown.

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