BlackRock Study Shows Inflation Risks and Thirst for Yield Drive Insurers to Private Markets
Proquest LLC |
Insurance firms are making a significant move toward private market assets to diversify against the risks that have traditionally underpinned their businesses, a new
According to a release from
Lackluster yield from traditional fixed income instruments is driving many insurers up the risk spectrum. Globally, one in three insurers intends to increase their risk exposure over the next three years compared to 15 per cent 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 per cent) are also uncertain over how regulators would treat such moves in allocation.
Lomas commented: "The risk characteristics of these investments are different to the more main stream assets that insurers have typically bought. The complexity of re-locating assets to private markets can be a challenge for investors, but given the potential returns and inflation protection, as well as the diversification benefits and risk profile that they can bring to a portfolio, the challenge may be worthwhile."
More information and complete details:
www.blackrock.com/institutions/en-zz/literature/brochure/driving- returns-fig-research-report-en-gb.pdf
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