Investing in Yushu Technology through a proxy, insurance funds compete for the hard tech boom

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● By our reporter Li Yunqi

On March 20, the Shanghai Stock Exchange accepted the STAR Market IPO application of Yushu Technology Co., Ltd. Yushu Technology may be aiming to become the first “humanoid robot” company on the A-share market. A China Securities Journal reporter has found that more than 20 insurance companies indirectly invested in Yushu Technology by participating in private equity funds as limited partners (LPs).

Experts analysis that the long-term nature of insurers’ liabilities naturally matches the growth cycle of technology companies, there is significant room for industry synergy, and current policy and market opportunities are favorable. When insurers invest in private equity funds in the capacity of an LP, they can not only draw on the management capabilities of professional general partners (GPs), but also enhance long-term investment returns. At the same time, a series of risk challenges during the investment process still require insurance companies to respond actively.

Entering as a limited partner

The reporter, after checking the Aiqicha website, found that among Yushu Technology’s first-tier shareholders there is no presence of any insurance company. Insurers mainly participate in investments in the form of LPs in private equity funds.

Specifically, Zhongji Life and AIA are the insurance companies holding relatively high proportions as second-tier shareholders. Zhongji Life’s stake in China Internet Investment Fund (a limited partnership) is 11.63%, and the latter holds 2.22% of Yushu Technology. AIA holds 19.67% of the shares of Nanjing Jingwei Chenchuan Investment Partnership (a limited partnership), and the latter’s shareholding ratio in Yushu Technology is 1.25%. In addition, large insurance groups have also joined the ranks of investing in Yushu Technology: Ping An Life, Ping An Health Insurance, and Ping An Property & Casualty Insurance under Ping An Insurance all hold shares and enter the investment. China Life P&C Insurance and China Life Health Insurance under PICC Life and PICC P&C and PICC Health, by investing in the National SME Development Fund, have also become its third-tier shareholders.

In addition to insurance companies, the investment presence of insurance asset management companies and private funds backed by insurer capital is also active. The TaiBao Changhang Equity Investment Fund (Wuhan) (a limited partnership) under Pacific Insurance became Yushu Technology’s second-tier shareholder, while Everbright Yongming Assets, Taibao Assets, and Minsheng Tonghui Assets appear as fourth-tier shareholders.

“Of all the pathways available for increasing allocations of hard-technology enterprises by insurer capital, this is the one that is most compliant and also most flexible.” Liang Bing, a partner at Shanghai Jingtiancheng (Beijing) Law Firm, said. When insurers invest in private equity funds as LPs, they indirectly invest in hard-technology enterprises. This allows them to leverage the management capabilities of professional GPs to offset shortcomings, while also meeting regulatory authorities’ requirements for the scope of equity investments in which they can engage.

Good opportunities for hard-tech investment

The reporter found that private equity funds such as Ningbo Meishan Bonded Port Area Sequoia Jiasong Equity Investment Partnership (a limited partnership), Nanjing Yuanjun Equity Investment Partnership (a limited partnership), the National SME Development Fund Co., Ltd., Hangzhou Sequoia Boheng Equity Investment Partnership (a limited partnership), and Shanghai STAR Market Center Phase II Private Investment Fund Partnership (a limited partnership) are concentrated targets for insurance enterprises to take equity stakes in. Besides investing in Yushu Technology, insurance funds also route through these equity funds to invest in many unlisted hard-technology companies, covering industries including semiconductor equipment, chip design, humanoid robots, biotech, and more.

Zeng Gang, deputy director of the National Financial and Development Laboratory, said that at present insurance companies’ investment in the hard-tech sector faces favorable opportunities. The “15th Five-Year Plan” outline proposes building a technology-finance system compatible with technology innovation, and improving support policies that enable long-term capital to invest early, invest in small projects, invest for the long term, and invest in hard technology. As the institutional environment continues to improve, the advantages of insurers’ long-term funds can be fully leveraged. Moreover, the hard-tech track is in a phase of rapid growth: companies in fields such as artificial intelligence, integrated circuits, and biopharmaceuticals have long-term growth potential, providing insurers with broad allocation space.

Zeng Gang said that insurer capital has characteristics such as long duration, large scale, and a pursuit of stable long-term returns, which highly match the long R&D cycles and high capital needs of hard-tech enterprises. This is long-term capital with strong suitability. Under policy guidance, regulatory authorities continue to optimize rules for insurer capital’s equity investments, removing institutional obstacles for insurance companies to participate as LPs in investing in national strategic directions such as technology innovation and advanced manufacturing. On April 8 of last year, the Financial Regulatory Administration issued a notice clarifying that the maximum proportion of investment by insurance companies in a single venture capital investment fund would be raised from 20% to 30%, expanding the space for insurers to invest in private equity.

Meanwhile, yields on traditional fixed-income assets have been gradually declining, and insurance companies also urgently need to explore new high-quality assets. By leveraging the industry and investment research capabilities of professional fund managers, they can position themselves in the hard-tech track. This can not only optimize insurers’ asset allocation structures and enhance long-term investment returns, but also enable them to realize their own value while serving the real economy and achieving self-reliance and strength in technology.

Actively addressing risk challenges

While seizing good investment opportunities, insurance companies must not ignore the risks they face when investing in hard-technology enterprises. Liang Bing believes that currently the risk challenges mainly concentrate on two areas: first, hard-tech enterprises have high professional barriers. Insurers generally lack systematic assessment capabilities regarding technology roadmaps and commercialization prospects, and their commercial due diligence teams are not adequately staffed; second, insurers’ internal compliance approvals and other decision-making processes are relatively lengthy, which does not match the fast pace of financing by hard-tech enterprises, making them prone to missing the best investment timing. “Hard-tech investments have long exit cycles. For exit channels such as IPOs and M&A, uncertainty exists, which tests insurers’ liquidity and solvency-capacity management.” Zeng Gang added.

To address the above issues, Liang Bing recommends that insurance companies should incorporate the legal and compliance framework into consideration from the initial stage of project advancement, understand regulatory boundaries and potential risk points in advance, and reduce the risk of having subsequent transaction structures overturned and rebuilt. In the stage of fund contracts and product-structure design, the GP of a private equity fund needs to fully understand the special compliance requirements of insurer capital LPs, and put in place institutional arrangements regarding information transparency, related-party transaction disclosures, and other aspects, so as to truly earn the trust of insurer capital LPs.

Zeng Gang recommends that insurance companies should adhere to layered and categorized investing, reasonably control the proportion invested in early-stage projects, focus on projects in the mature stage with a basis for industrialization, diversify track concentration, and reduce the risk of a single project. At the same time, they should establish a long-term performance evaluation mechanism suited to technology investment, weaken short-term return evaluation, and improve tolerance mechanisms. On the risk-control side, they should build a dedicated risk assessment system for technology projects, with emphasis on their technological maturity and commercialization implementation capability. In terms of exits, they should actively use diversified methods such as S funds and industrial M&A, plan exit paths in advance, improve capital turnover efficiency, and balance long-term value with liquidity security.

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