Yesterday's purchase by HSBC Holdings of a 9.9 per cent stake in Ping An Insurance (Group) from Goldman Sachs and Morgan Stanley was a good deal for all parties concerned. But as the subsequent failure of Ping An's stock price to reach the $13.20 per share paid by HSBC shows, portfolio investors are rightly cautious about clutching the banking giant's coat-tails. For the private capital arms of Goldman and Morgan Stanley, it was high time for an exit. The two firms each invested US$35 million in Ping An back in 1994 and have held on to their stakes ever since. Now, one year after Ping An's initial public offering, their lock-up period is over, leaving them free to sell out. HSBC, which bought a 10 per cent stake in Ping An in 2002 and has made no secret of its wish to acquire more, was the obvious buyer. Morgan's and Goldman's investors should be satisfied. The sale price represents a return of some 15 times their original investment: nothing special in the high octane world of private equity perhaps, but very respectable given the troubled history of investments in China. HSBC has reason to be pleased, too. Raising its stake in Ping An to 19.9 per cent is a natural step for the bank as it ramps up its presence in the mainland's financial services markets. And at a 9 per cent premium over Ping An's Friday close, its $8.1 billion investment buys the banking group greater management influence over the mainland's second-biggest insurer at a relatively low price. But the modesty of that price should hold out a warning to investors. According to Karen Chan, an insurance sector analyst at Nomura, the $13.20 a share paid by HSBC implies an average growth rate for Ping An over the next few years of about 13 per cent per year. That is well below the current rate of growth for life insurance premiums in China of 22 per cent, and way down from the heady 39 per cent growth the business was enjoying just two years ago. Life insurance is getting harder to sell in the mainland. In recent years, life policies have been sold to savers as an alternative to low-yield deposit accounts. But with guaranteed returns on life insurance products capped by the authorities at 2.5 per cent, and five-year term deposits now yielding 3.6 per cent as interest rates creep higher, savers are inclining towards the banks once again. Ping An has attempted to respond to the harsher environment by concentrating on selling higher-margin regular premium life products, rather than the single premium policies traditionally popular in China. As a result, revenues fell 5 per cent last year, while profits rose 33 per cent. Figures like those clearly appeal to HSBC's thrifty bankers, but the strategy does not impress other insurers. In a market that is rapidly opening to foreign competition, insurance executives typically stress the necessity of taking losses for the next few years while building market share. There are advantages to Ping An's more prudent strategy, however. Slower top-line growth allows the firm to concentrate on building a more professional sales force. Mis-selling of life policies has been a perennial problem, and foreign entrants to the market complain that recruiting competent agents is one of the greatest difficulties they face. After trimming its sales force by almost half to 180,000 two years ago, Ping An is bucking the trend by aiming for quality over quantity. At the same time, slower sales growth will allow management to focus on improving hitherto dismal returns from the investment side of the business. So far, insurance companies have been restricted largely to low-yield bank deposits and government securities. As reform permits them to buy a wider range of assets, they will have to improve their investment and risk management techniques radically. HSBC is playing a long game in the mainland. As an international financial giant, it can afford to risk a few billion dollars on building its long-term investment in Ping An. For ordinary portfolio investors, however, Ping An shares are highly unlikely to yield spectacular gains over the short, or even the medium, term.