Taiwan’s Cathay SITC to set up first local manager-owned PE firm

04 October 2017   Category: News, Asia, Global, Taiwan   By Asia Asset Management

Cathay Securities Investment Trust Co (Cathay SITC) is poised to become the first asset manager in Taiwan to set up its own private equity (PE) firm since the Taiwanese regulator allowed local fund houses to participate in the PE business.

Cathay SITC says in a statement that it plans to establish a wholly-owned PE firm, with a registered capital of NT$50 million (US$1.64 million), by the end of January 2018. The aim is for the PE firm to raise NT$10 billion in its first fund, to invest in innovative industries.

Cathay SITC says it will submit an application to form the PE subsidiary to the Financial Supervisory Commission (FSC) by the end of the year.

The FSC had said on August 3 that it will allow domestic asset managers to establish PE investment arms as part of a plan to divert more institutional capital to infrastructure, utility and green industries in Taiwan.   

Cathay SITC Chairman Jeff Chang will head the PE subsidiary, which has not been named yet.

“The first fund raised by the PE firm will invest in innovative industries such as alternative energy and water resources,” Mr. Chang says in the September 27 statement.

“We will look into the investment projects with long investment horizons, low risk and stable long-term returns. The size of fundraising is about NT$10 billion,” he adds.

According to Mr. Chang, the company has identified some investment targets with a ten year annualised return of 5%.     

He says the PE fund will introduce yield-seeking domestic institutional investors, such as insurance companies, to local infrastructure projects.  

Taiwanese insurance companies are currently only allowed to invest in venture capitals (VCs), and have to seek regulatory approval to invest in PE funds.

“The Insurance Bureau is amending the regulation to loosen the controls. We expect the amendment will drive more insurance capital to invest in PE funds,” Mr. Chang says, adding that Taiwanese insurers have strong appetites for local infrastructures projects with stable cash flows.  

According to Ronald Wan, chief executive of Partners Capital International, market demand will determine whether a mutual fund house can successfully develop its alternative investment business.

“Also, [the] alternative investment market is niche and different from its core business. Asset managers need to do their homework such as setting appropriate pricing strategies and developing sufficient investment capabilities before making the move,” Mr. Wan tells Asia Asset Management.

Cathay SITC is one of the main asset managers for Cathay Life Insurance, the insurance arm of Cathay SITC’s parent group, Cathay Financial Holdings.

Cathay SITC had total AUM of approximately $17.16 billion as at June 30, 2017.