BlackRock: Insurers most bullish on private equity and real assets

Private equity and real assets will be the top beneficiaries of insurers’ growing appetite for private markets over the next 12 to 24 months, according to research from BlackRock.

Almost two-fifths (38 percent) of insurers plan to increase their private equity exposure over the next 12-24 months, the asset manager’s Global Insurance Report 2019 found. Conversely, just 11 percent of the 360 respondents, who together represent $16 trillion of assets, expect to reduce their allocations.

The asset class was joint most-popular along with real assets, while fixed income and real estate were the next most appealing, with 36 percent of insurers planning to increase their allocations to each.

Almost two-thirds expect to increase their allocation to private markets over the next three years. On average, insurers expect to increase their private market allocations from 6.6 percent to 8.5 percent as a proportion of their total portfolio.

“Building new allocations, especially in non-traditional assets, is a complex, multidimensional challenge,” Raman Srivastava, chief investment officer at Canada’s Great-West Lifeco, said in the report. “Sometimes we seek exposures in order to capture additional returns, while in other instances the main aim is to diversify some of our public equity exposure.”

Almost 80 percent of global respondents were positive about the current investment outlook and 56 percent do not expect a recession before 2022. Asia-Pacific insurers were the most subdued, with 66 percent of respondents optimistic, compared with 86 percent and 80 percent for the Americas and Europe respectively.

Insurers were significantly less open to risk than last year: 28 percent said they would be willing to add risk to their portfolios over the next 12-24 months, down from 47 percent in 2018. The report cited pressures on the mainly export-led economies of Europe and Asia-Pacific from continuing trade tensions as a likely contributing factor.

“I feel pretty constructive about the US economy,” Tony Malloy, chief investment of New York Life, said in the report. “That said, the trade war, Brexit and other geopolitical concerns mean that we cannot discount the possibility of a global slowdown if not recession, if not in 2020, then probably by 2021.”

ESG is also becoming a priority, with 23 percent saying they were significantly more focused on ESG integration than last year and a further 44 percent were somewhat more so. The majority of respondents still assume that taking ESG considerations on board involves some compromise in relation to other investment goals, primarily diversification, income and alpha potential.

BlackRock’s report chimes with Goldman Sachs research from May which found that 36 percent of insurers expect to increase their allocation to private equity over the next 12 months, more than any other asset class. It said Asian insurers were most bullish on private equity, with 56 percent planning to increase their allocations, compared with 30 percent of US insurers and 21 percent in EMEA.

Insurance companies are losing their appetite for US equities, cash and short-term instruments and municipal bonds, the Goldman report noted. Respondents identified credit quality deterioration and low yields as the biggest investment risks, while last year’s top concern – rising interest rates – was among the least prevalent this year.