Ping An kicked off China’s overseas spending spree by acquiring the Lloyd’s of London building for $397 mil

After investing in more than $1.4 billion of real estate in the US and the UK in the last two years, Ping An Insurance is one of the biggest players in China’s wave of outbound investment. But according to one of the executives leading the company’s overseas acquisitions, the top ten Chinese insurer is still in the early stages of its international deals.

Shenzhen-based Ping An has already purchased two office properties in London for a combined ₤587 million($897 million), and during April joined forces with competitor China Life to take a majority stake in Tishman Speyer’s $500 million Pier 4 development in Boston.

Now the insurer, which states RMB 1.4 trillion in current assets under management, is looking for more opportunities in core markets, if they fit its criteria of having steady income and clear exit strategies.

Strong Appetite to Go Abroad

Between acquisitions in the UK, US and Australia, China’s insurers invested more than $4 billion overseas in 2014 and 2015, but according to Kevin Zhang, an investment manager with Ping An, this is just the beginning.

“Now Chinese insurance companies have a strong appetite to go abroad,” Zhang told an audience of regional and international fund managers at the PERE (Private Equity Real Estate) China Summit in Shanghai last week.

The company, which also dabbles in banking and trusts still has a substantial appetite for more property assets, particularly in global gateway cities.

Starting in late 2012, China’s insurers have been allowed to invest up to 15 percent of their assets overseas, and Zhang estimates that the industry has only invested two to three percent of these assets across the border so far.

This is Not the 1980s, and These are Not the Japanese

While some observers liken China’s current grab for international property assets to Japan’s ill-fated acquisitions of the 1980s, Zhang believes that Chinese deals are more rooted in fundamentals.

“The first priority (for China’s insurers) is to drive return, and the second priority is to diversify the portfolio,’ the MIT graduate said, while indicating that more deals could be on the way. “I anticipate this trend going up. At least for our part right now we want to do more,” Zhang added.

In addition to its Boston deal this year, Ping An led the way across the border for China’s insurers in 2013 by picking up the Lloyd’s of London building in the city’s financial district for ₤260 million ($397 million. In January of this year, Ping An bought its second London office block for ₤327 million ($500 million).

Controlling the Downside as Yields Compress

As an institutional investor with a long horizon, Ping An believes that it has some advantages when bidding against private equity firms, particularly in core markets such as London, New York and Los Angeles. However, Zhang still acknowledges that with real estate prices rising rapidly in these markets, investment yields are rapidly compressing.

The solution for Ping An is to dig into more specialised property types, and investigate up and coming markets.

“We want to control the downside,” Zhang pointed out. “To do this, we are looking into alternative sectors, such as logistics and data centres.” Ping An is also looking at second-tier locations in major metropolitan areas of the US and the UK, he pointed out.

Ping An’s investment in Tishman’s Boston project already took it outside the frontiers of most insurance company deals in backing a development project, which typically has higher risks than established assets such as an existing office building.

However, investors looking to market properties in second-tier cities to Ping An and its cashed up Chinese competitors may be disappointed. For Ping An at least, Zhang says that concerns over liquidity and market stability make Ping An wary of wandering from cities offering core-grade real estate assets, such as New York, Boston or Los Angeles.

China’s Ping An “Just Getting Started” on Overseas Property Buys