Alternative investments are utilized by small group of investors in Taiwan, but the usage of alternative investments is steadily growing across institutional and high-net-worth spaces over the last two years. From institutional perspective, Private Equity and Infrastructure are appealing to Taiwan life insurance companies the most, while other asset classes are losing favor for quite some time. Readers could recall our insights shared last summer (https://www.navigateconsultant.com/post/alternative-investment-opportunities-are-always-a-fit), and we will address the updated institutional scale later in this article. Noteworthiness is the alternative investments are no more the apple of eye for institutions only. Taiwan high-net-worth investors tend to embrace alternative investments given its benefits of optimizing asset allocation by accessing high-quality opportunities in private markets, foreseeable steady income, and rewarded return of capitals etc.
According to statistics as of June 2022, the trend that lifers lean to Private Equity and Infrastructure is not changed much. Risk-Based Capital (RBC) ratio in particular drives lifers to look at Infrastructure funds. RBC system has been implemented in Taiwan since 2003. To meet the RBC requirements, insurance companies in general take RBC ratio of different fund type as consideration, where Private Infrastructure funds enjoy the lowest RBC ratio, which are appreciated by lifers. Though it looks like Private Equity funds do not have the RBC privilege, their rewarded long-term IRR are recognized by insurance companies, making Private Equity occupy major investments from life insurance companies.
Exhibit 1: Extract of RBC ratio for different product types of alternative investments
Source: Taiwan insurance institute
Investment volume of alternative investments from Taiwan insurance companies went to historical high, accumulated around USD5.3Bn in 2021, in which Cathay Life contributed around USD3Bn, followed by Fubon Life’s estimated USD1.45Bn. In 2021, it’s notable see Cathay Life sent two super large tickets to two private equity funds, each obtained USD600Mn capitals. It’s encouraging to see Catahy committed four Private Equity investments for each collecting more than USD200Mn, including abovementioned two.
Fubon Life has soft spot for Infrastructure so commit capitals, each more than USD200Mn, for three Infrastructure funds in 2021; nevertheless Fubon simultaneously in balance mode allocated assets into Private Equities. While as of the first half year in 2022, we see Cathay life seems to be watching however Fubon Life continues similar interests and maintains the same investment pattern in alternative investment.
Exhibit 2: Investment scales of Taiwan lifers’ alternative investment over past 5 years
Source: Market Observation Post System
In terms of the tendency of wealth management moving towards alternative investments, not merely onshore Taiwan private banks are setting goals to develop alternative product spectrums, following Taiwan relaxation of wealth management regulation in 2020, to satisfy accelerating high-asset client demands. As of today, seven banks to receive regulatory approval for onshore private banking, among them CTBC and Cathay are most aggressive local banks to develop alternative investment products. Separately, a few names of retail banks and securities brokers, consecutively step into alternative investment market also. Awareness of alternative investments benefits are moving towards the middle-class rich. Amongst available asset classes, private real estate suits Taiwan HNW investors’ taste the most. Though the statistics of private placement funds are not fully disclosed, what we conclude from the market intelligence is more than 5 private REITs funds, in recent 2 years, are launched or distributed via different routes and channels, where projected scale for each fund could reach to USD50Mn. In the fact that those funds ultimately delivered satisfied performance consistent to investors’ expectation, private REITs is becoming a desirable category for rich individuals. Investments by HNW investors are projected to continue to grow. We estimate private infrastructure would become the next possible to be liked by HNWs due to its similar characteristics, i.e. steady income, stable returns and low correlation to equity market.
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