Global insurers switching investments to private equity and infrastructure, says Goldman Sachs

Out-Law News | 07 May 2014 | 1:05 pm | 1 min. read

Insurers are increasingly switching to less liquid investment classes such as infrastructure debt, private equity and commercial mortgage loans as they believe these will offer better investment returns than government and agency debt and cash, according to new research.

Goldman Sachs, the investment bank, surveyed 233 chief investment officers (CIOs) and chief financial officers (CFOs) at insurers with over $6 trillion in global balance sheet assets as part of its research. It found that CFOs in particular were demonstrating more enthusiasm for riskier asset classes than last year given the low yields from more traditional types of investment.

"Insurers remain focused on the search for return, but view corporate bonds and public equities as either overvalued or fairly valued," said Michael Siegel, head of insurance asset management at Goldman Sach's asset management arm. "This is driving CIOs to explore non-traditional asset classes that can offer higher total return potential and compensation for illiquidity."

"Against a backdrop of low yields and growing concern about monetary tightening, CIOs are planning to increase allocations to less liquid assets, alternatives and equities – rather than increase credit risk or lengthen duration – to bolster potential investment yields and returns," He said.

Insurers continued to view the investment environment as challenging according to the survey; which found that 42% of respondents believed that investment opportunities were getting worse as opposed to 25% who believed that they were improving. In general, CFOs gave more optimistic responses than CIOs. Both CIOs and CFOs said that credit and equity market volatility were the greatest risk to the value of their investments going into the next year, according to Goldman Sachs.

CFOs were broadly supportive of the level of investment risk currently being taken by the industry. Only 6% said that their industry peers were taking on too much investment risk as opposed to 73% who said that the industry was investing appropriately. This was a significant change from last year's survey results, in which 29% of CFOs said that the industry was taking on too much investment risk, according to Goldman Sachs. Respondents also said that the industry was currently adequately or over-capitalised.