Insurer backs pioneer Chinese private infra fund

Suzhou International Development Venture Capital Holding (SIDVC), a Chinese venture capital firm based in the city of Suzhou, has set up one of China’s first private infrastructure funds, and the largest one in the country to have the backing of an insurance company to date, according to a firm spokesman.

The firm has already closed the RMB10 billion (€1.2 billion; $1.6 billion) fund with RMB6billion in commitments from China Life Insurance, a RMB1.7 trillion state-owned giant, and its subsidiaries, according to a Hong Kong filing. SIDVC committed RMB3 billion of capital itself, and RMB1 billion was raised from Chinese joint stock company Soochow Securities.

The fund, named Urban Construction Fund, will be focused solely on the city of Suzhou, which is just west of Shanghai. Suzhou is quite underdeveloped compared to the cities surrounding it, so an infrastructure fund should have plenty of opportunities, according to Johanna Zhang, analyst at China-based financial research firm Z-Ben Advisors. For example, the city has barely begun constructing its subway lines.

All projects of the Urban Construction Fund will be approved and sponsored by the Suzhou government, and must “have indicated a clear source of revenue, stable cash flow and appreciation potentials”, according to the release – though it does not specify what kind of revenue it must be.

The fund will have a life of 12 years – a nine-year investment period, and a three-year exit period.

Zhang believes there are several triggers for setting up a private infrastructure fund in China now. The Chinese insurance industry was only cleared for investing in infrastructure in October, and many insurance companies are hoping the asset class will boost their investment performance.

In China’s most recent push for increased urbanisation, the government has been particularly seeking insurance companies as business partners in order to develop smaller cities. Zhang also wonders whether partnering with the Suzhou government might help promote China Life’s product in the area.

The analyst suggested the fund will probably take some time to get underway, as “they may need to explore a good business model [in order] to have decent investment capability”. In addition, when other insurance companies begin to look into infrastructure, the competition for the Urban Construction Fund will increase.