China's big insurance companies have begun window shopping for potential overseas asset management acquisitions, bankers and industry analysts say, since regulators opened the door two years ago for insurers to invest a fraction of their general accounts offshore.
Toward the end of 2014, however, it was Taiwan's biggest insurer, Cathay Life Insurance Co. Ltd., that made headlines with its decision to acquire Hartford, Conn.-based insurance asset management specialist Conning Holdings Corp. and its $92 billion in client assets for up to $240 million. (All figures in this story are in U.S. dollars.)
The acquisition is expected to close during the second half of 2015.
The move will consummate a relationship that began in 2010 when Cathay approached Conning in search of “on-the-ground expertise” in running an overseas investment portfolio that was getting larger every year, said David Sun, executive vice president of Cathay Life's parent company, Cathay Financial Holdings, in a Dec. 16 interview. It evolved the following year into a 50-50 Hong Kong-based joint venture, Cathay Conning Asset Management.
At the time of the joint venture agreement in 2011, Cathay took a 9.9% stake in Conning.
It was five or six years ago that Cathay decided to make building its asset management business — now the biggest in Taiwan with more than US$11 billion in assets under management — a strategic priority, said Mr. Sun.
Asset management would be the “third leg of the stool,” alongside the group's insurance business and the country's second largest privately owned bank, with the goal of building a “complete financial services platform,” he said.
“As we looked (back then) at the asset management business, we felt that” unlike insurance, which is very local, and banking, which can be regional, asset management “was really a very global business,” requiring a presence in the U.S. and Europe, as well as Asia, noted Mr. Sun.
For the Cathay team it was a matter of being able to offer “products that meet all our clients' needs,” said Mr. Sun. In Taiwan, where the appetite for overseas investments is unusually high, with 60% of retail investor assets in overseas funds, the need for a global platform was pressing, he added.
In the same interview, Woody Bradford, Conning's CEO, said Cathay's purchase of Conning from private equity owner Aquiline Capital Partners LLC, New York, removed uncertainty about Conning's long-term ownership while providing the firm with a parent committed to supporting expansion of its investment capabilities.
At a moment when ultra-low yields for government bonds have left insurance companies facing “a whole new set of challenges,” Conning will continue adding strategies that help clients systematically diversify away interest rate and credit risk, said Mr. Bradford.
Likewise, the firm will strengthen its ability to provide clients with “sophisticated, robust asset allocation and risk management capabilities,” he said.
That effort to add higher risk-reward capabilities already is well underway. Conning introduced a U.S. high-dividend equity strategy in 2011, followed by a master limited partnership U.S. equity strategy and an Asian high-dividend-yield equity offering in 2013. And Mr. Bradford said Conning launched a global bond strategy at the start of 2015 in the U.K. A global equity strategy is due to come out this year as well, he said.