The Adverse Selection And Moral Hazard In The Process Of China Insurance Funds Integrated Into REITs

China’s REITs has its unique characteristics in operation mode. Our REITs companies delegate specialized personnel or real estate companies to operate real estate property by issuing beneficiary certificates and entrust, in which way to raise more money. From the standpoint of the beneficiary, in the process of insurance funds investing REITs, there is a huge risk of adverse selection and moral hazard for the reason of Information asymmetry. In the process of mutual exchange between insurance companies and real estate enterprises, either of them has inadequacy information, real estate enterprises have more information about trust investment projects and its own operational situation. As a whole, both sides are in a kind of principal-agent relationship because of asymmetric information. Concretely speaking, information asymmetry in the process of investment is embodied in the following two aspects:Firstly, there is a serious information asymmetry in the determination of trust investment project. For all applied trust investment projects by insurance companies, real estate enterprises have more personal information, such as the degree of the risk of the project, project managers, development potential and success probability quality, capital demand, capital structure, etc. Secondly, after the insurance company investing completely, there is also serious information asymmetry in the information on the real estate enterprise management behavior and corporate earnings.In the first situation, because of opportunism and the trend of utility maximization, real estate enterprises are likely to hiding some important information on trust investment project quality just to getting more investing money. Therefore, the insurance company in the choice of real estate trust investment project is facing bigger risk, ending up with poor quality projects expulsing good quality, producing adverse selection. In the second situation, as the external investors, the insurance company pays more attention to the value of the enterprise but the risk entrepreneurs and real estate enterprise manager interest may not pay interests in this. In the same reason of opportunism, they may take some action against the insurance company in the advantage of more private information, it creates moral hazard.Generally speaking, the principal-agent theory is more used in the insurance industry, mainly used for the analysis of the insurer, insurance agents, and policy-holder of the three economic interest relationship aspects. According to the research situation in this paper, in order to promote the REITs in the healthy development of our country, according to the current domestic existing real estate investment trust products, this paper based on the study of principal-agent problems, combining with the characteristics of the investment of insurance funds and REITs operation, through the analysis of actual case, putting forward with the investment of insurance funds REITs process middle, finding new method to solve the principal-agent problems.