New York (HedgeCo.Net) – New research from hedge fund giant BlackRock shows that even in the wake of the CALpers exit from hedge funds, insurance firms are making a move toward private market assets to diversify against the risks that have traditionally underpinned their businesses.
Conducted by the Economist Intelligence Unit, the BlackRock-commissioned study surveyed 243 senior executive insurers with over $6.2 trillion of assets, found that the number of insurers with over 15% of their portfolio in private market assets had more than quadrupled to 26% from 6% three years ago, and is expected to nearly double again to 46% by 2017.
David Lomas, global head of BlackRock’s insurance asset management unit, said, “It used to almost be ‘buy your bonds in the morning and relax in the afternoon’, but insurers are now faced with a far more complex operating environment. This research shows insurers that are having to make a great migration toward private markets to diversify income streams and maintain returns
on equity.”
Globally, one in three insurers intends to increase their risk exposure over the next three years compared to 15% who intend to decrease risk. Of the risk-takers, 68 per cent are hoping to replace or enhance investment income, while 66 per cent point to the diversification benefits it would afford.
Lomas added: “The fixed income challenge is well known, but what is interesting is the level of conviction CIOs seem to now have towards things like real estate debt and infrastructure assets. Industry leaders seem to be much more comfortable with investing in illiquid private market assets for income. Fundamentally, a shift up the risk spectrum needs to be achieved in a measured and targeted way.”
Re-allocating for yield is proving challenging, the study suggests, with insurers having to assess and invest in previously unchartered territories. Two fifths of insurers cite lack of access to the right opportunities as a challenge and the same amount have concerns regarding pricing and transparency of private assets. A third of insurers (33%) are also uncertain over how regulators would treat such moves in allocation.
Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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