Insurance capital's enthusiasm for equity market allocation continues this year. Statistics show that insurance funds have conducted 30 placard activities year-to-date, including 6 in the A-share market and 25 in the H-share market, primarily involving banking and insurance sectors, while also covering utilities, energy, biomedicine, and technology sectors.

Under the backdrop of low interest rates and relatively high funding costs for the insurance industry, insurance asset management needs to adopt a more prudent approach and long-term investment thinking to capture market returns. Recently, Su Gang, Vice President, Chief Investment Officer, and CFO of China Pacific Insurance (Group) Co., Ltd. (CPIC), shared detailed insights on insurance fund allocation strategies across equity, fixed income, and alternative assets under current market conditions.

**Low-Position Additions with Dividend Value Strategy as Core**

**Q: Could you introduce the company's overall investment performance over the past year and highlight what you consider the most notable achievements?**

Su Gang: CPIC adheres to the investment philosophy of "value investing, long-term investing, prudent investing, and responsible investing." In recent years, CPIC has consistently implemented a refined barbell-type asset allocation strategy. On one hand, we continuously strengthen long-term government bond allocation to extend the duration of fixed-income assets. The company's government bond allocation ratio has increased year by year, ranking among the top listed peers, with the modified duration gap between assets and liabilities continuously narrowing. On the other hand, we appropriately increase allocation to equity assets and unlisted equity alternative investments to enhance long-term investment returns.

CPIC has made multiple opportunistic additions during equity market lows over the past year, including during the market downturn before September 24, 2024, and the significant market decline on April 7 this year, achieving value growth while fully serving as a market stabilizer.

This year, CPIC established the CPIC Strategic Emerging M&A Fund and CPIC Zhiyuan Private Securities Investment Fund. The CPIC Strategic Emerging M&A Fund targets 30 billion yuan with an initial 10 billion yuan. The CPIC Zhiyuan Private Securities Investment Fund targets 20 billion yuan. These initiatives help the company leverage insurance capital's patient capital advantages, support long-term investment, and achieve stable returns.

**Q: Could you elaborate on the main logic behind the company's asset allocation over the past year?**

Su Gang: CPIC focuses on its core insurance business and has established a strategic asset allocation methodology and model centered on solvency risk appetite. Combined with medium-to-long-term capital market forecasts, we form cycle-transcending long-term asset allocation strategies and reasonably plan major asset class allocation ratios.

Over the past year, CPIC has further balanced short-term profit volatility and long-term net value growth in accordance with new accounting standards requirements. Based on cost-benefit considerations, term structure, and cash flow matching requirements, we execute refined barbell strategies. On one hand, we actively expand net investment income channels, capture market rate upward volatility opportunities, and reasonably extend fixed-income asset duration. On the other hand, we increase macro research investment and optimize tactical asset allocation strategies.

For equities, CPIC uses dividend value strategy as the core, implements stylized investment strategies based on market changes, and continuously optimizes equity investment portfolio structure. For fixed income, the company increases exploration of innovative high-quality assets, focusing on ABS (Asset-Backed Securities), public REITs (Real Estate Investment Trusts), and other emerging business sectors to expand new growth areas. Simultaneously, with continuous policy optimization, the company actively expands investment varieties and channels, continuously advancing new business pilots including gold investment and swap facilities to enhance comprehensive efficiency and quality of insurance fund utilization.

**Insurance Fund Placards Primarily for Financial Investment**

**Q: This year, insurance fund placard activities have been frequent in the market. How do you interpret this phenomenon?**

Su Gang: In recent years, insurance fund placard activities targeting listed companies have continued to increase. Under the current low interest rate environment, insurance funds increasing investment and allocation in high-quality equity assets through placard activities is reasonable.

Insurance fund placard behaviors can be viewed in different scenarios. One type aims to obtain board seats and influence, which can be classified as long-term equity investments. This type requires substantial investment amounts and is relatively rare in the market. Another type is pure financial investment, where the investment target has relatively small market capitalization, making the 5% placard disclosure threshold relatively easy to reach. This type of investment is no different from ordinary secondary market investments.

The company is quite prudent regarding placards. Currently disclosed placard cases are financial investments. Although shareholding ratios exceed 5% of listed companies' issued share capital on the Hong Kong Exchange, the total investment amounts are limited due to the small issued share capital of these companies on the Hong Kong Exchange.

As a major domestic insurance group and professional institutional investor, CPIC employs modern portfolio theory in investment portfolio construction, maintaining appropriate diversification in industry allocation and security selection. Through diversified investment, we reduce portfolio volatility risk and improve overall risk-return ratios, avoiding concentration in any single area or betting on individual companies. Overall portfolio performance depends on long-term enterprise value growth rather than short-term fluctuations of individual securities.

**Q: How does CPIC view the current equity market, and what are the specific investment strategies and sector preferences for equity investment?**

Su Gang: CPIC is optimistic about the development prospects of China's equity market. First, among major asset classes, equity assets have the best allocation value. As of late July, the 10-year government bond yield was 1.7%, while the CSI 300 Index dividend yield was 2.8% and the Hang Seng Index dividend yield was 3.2%, providing better intrinsic return rates for equity assets. Second, policies highly value capital market development, introducing various measures to promote healthy market development. Regulators actively guide medium-to-long-term funds into the market, encourage listed companies to enhance shareholder returns through buybacks, repurchases, and dividends, and promote mergers and acquisitions. The central bank also supports capital markets through new monetary policy tools. Third, China's economy maintains steady progress with rapid development of new productive forces, achieving stable quantitative growth and effective qualitative improvement. In capital markets, this creates abundant investment opportunities in AI, embodied intelligence, new consumption, and high-end equipment.

CPIC maintains a cross-cycle asset allocation system in equity investment, building a deep research system based on industry chain research groups, forming a strategy-driven management system in investment management. We have developed multiple strategy lines, creating a "core + satellite" strategy system to obtain sustainable dividend income while sharing long-term enterprise value growth.

The dividend value strategy is the company's core equity asset investment strategy, chosen based on understanding insurance fund characteristics and China's capital market. This strategy focuses on and long-term invests in listed companies with strong dividend distribution capabilities and stable growth prospects, obtaining returns from dividend income and stable performance growth. Unlike pure high-dividend strategies, dividend value strategy is a value investment approach balancing dividends and growth, emphasizing corporate governance, competitive advantages, management capabilities, and long-term growth prospects while requiring good dividends.

CPIC has also deployed industry chain strategy lines, achieving comprehensive market-wide industry chain investment coverage and growth strategies aligned with economic development directions. Following high-quality economic development trends, we invest in listed companies in energy transition, technological innovation, pharmaceutical health, consumer services, and scarce resources to share returns from long-term enterprise growth under economic transformation.

**Q: Low interest rate trends have persisted for years, with various rates continuing downward this year. What response strategies do you have, and what is your current bond market strategy?**

Su Gang: In the persistently declining interest rate environment, CPIC continues executing barbell-type asset allocation strategies. For fixed-income assets, we optimize duration structure through increased allocation to long-duration bonds, narrow duration gaps, reduce interest rate risk, and maintain asset duration stability through appropriate government bond allocation. Simultaneously, we advance innovative fixed-income strategies, actively researching and promoting innovative fixed-income and quasi-fixed-income investment opportunities including private banking wealth management, public REITs, high-dividend equity, and stable dividend equity funds to smooth traditional fixed-income net investment yield decline pressure.

For equity assets, we respond to regulatory calls by appropriately increasing equity allocation ratios within allocation frameworks while reshaping equity strategies and building core equity strategies. Through high-dividend equity allocation, we strengthen absolute returns and improve overall net investment yields.

Regarding bond market strategy, insurance funds are natural allocation funds from a liability characteristic perspective. CPIC's fixed-income investment primarily focuses on ultra-long-term government bonds, long-term high-grade credit bonds, and long-term high-grade bank deposits. The overall fixed-income asset approach involves reducing asset duration gaps and reinvestment risk during interest rate decline cycles through refined and reasonable asset-liability management without credit downgrades.

For yield enhancement strategies, CPIC deeply explores credit value with diversified trading strategies, such as capitalizing on term spread and individual bond liquidity differences, conducting swing trading based on policy and macro fundamental analysis, and implementing riding strategies based on yield curve changes and buy strategies during market adjustments from event impacts. Additionally, CPIC captures changes in risk appetite, market sentiment, and liquidity, introducing bond funds and convertible bonds with greater price elasticity and better liquidity to further enhance investment portfolio yield levels.

Learning from international experience, gradually expanding overseas investment is an important measure to address low interest rate challenges. Current insurance fund overseas investment requires prudent development under regulatory guidance. CPIC actively monitors "Southbound Connect" channels, expecting to further expand investment scope and enrich investment varieties and strategies under future regulatory guidance.

**Insurance Asset Management Investment Faces Three Major Opportunities**

**Q: Alternative investment is an important segment for insurance funds. Under current conditions, how do you deploy alternative investments, and what preferences do you have in asset selection and investment strategies?**

Su Gang: In the current low interest rate environment, alternative assets can diversify investment portfolio risks due to their relatively low correlation coefficients with traditional fixed-income and equity assets, making them an important direction for insurance fund utilization.

First, in equity investment, first-half market conditions show that with active local government funds and insurance funds, equity investment market fundraising and investment data show some recovery trends. Particularly under national policy guidance, the M&A market will brew new opportunities, promoting more diversified exit methods. CPIC fully leverages insurance capital's long-term and patient capital advantages, actively seizing opportunities related to Chinese-style modernization construction and major industrial strategic upgrades.

Second, in real estate investment, CPIC primarily invests through real estate funds using sub-fund + direct investment allocation strategies, focusing on infrastructure areas including logistics warehousing, data centers, industrial parks, and new energy infrastructure, as well as commercial office real estate and long-term rental housing that meet insurance fund investment requirements. We obtain stable periodic returns from underlying projects through screening quality assets and comprehensively utilizing mezzanine investment strategy mechanisms.

**Q: Overall, how do you assess current economic and market conditions? For insurance funds, what challenges and opportunities exist in allocation, and what are your expectations for this year's investment performance?**

Su Gang: The world is experiencing unprecedented changes, with global political and economic patterns in deep adjustment and transformation. Internationally, tariff competition and geopolitical conflicts continue disrupting global supply chain stability, triggering resource allocation and trade flow restructuring. Domestically, real estate market deep adjustments continue, local government implicit debt resolution enters critical phases, combined with slowing investment growth and persistent deflation pressure. Multiple factors create complex challenges for insurance fund allocation environments.

From equity market perspectives, under dual support from continuous policy dividend releases and steady accumulation of economic transformation momentum, long-term positive allocation logic continues consolidating with increasingly significant medium-to-long-term allocation value. However, short-term marginal changes in macroeconomic variables and rapid market sentiment shifts create strong interactions, intensifying market volatility and adding difficulty to insurance fund equity market investment operations while demanding higher risk management capabilities.

Regarding interest rates, medium-to-long-term rate centers are expected to decline. In declining rate environments, quality asset supply is relatively insufficient, creating persistent "asset shortage" problems and increasing difficulty for insurance funds to obtain stable returns.

However, crises and opportunities always accompany each other. We also face multiple strategic opportunities: First, historical opportunities from national strategic emerging industry rise under policy support. With accelerated rise of national strategic emerging industries including new energy, artificial intelligence, and biomedicine, insurance funds can leverage their large scale and long-term advantages to deeply participate in related industry investments, sharing rapid industry development dividends while optimizing asset allocation structures and achieving long-term value growth. Second, following global transformation trends and seizing new internationalization opportunities. Comprehensively incorporating overseas investment into CPIC's overall investment management system, scientifically setting overseas investment strategic objectives, and steadily advancing global asset allocation layouts to broaden quality asset acquisition channels. Through cross-market, cross-cycle diversified investment portfolio construction, we can achieve better balance between returns and risks, injecting lasting momentum for high-quality company development. Third, new investment quality improvement opportunities driven by AI+ empowerment. With rapid fintech development, big data and artificial intelligence applications in investment decisions and risk management become increasingly extensive and deep. Insurance funds can actively utilize these technological means to improve investment research precision and efficiency, strengthen risk identification, measurement, and control capabilities, and drive investment management model iteration upgrades.