An overwhelming majority of insurers plan to increase allocations to private markets, according to a recent global insurance report conducted by BlackRock.
The report found that 91% of respondents plan to increase their investments to private markets within the next two years.
BlackRock said it polled 410 insurance investors across 32 markets with $27trn in assets under management.
Asia Pacific and North American insurers favoured private markets slightly more, where 96% of respondents said they planned to increase exposure.
“We’ve seen rapidly accelerated demand for private markets among insurers in recent years, given these investments’ dual benefits of diversification and increased income generation,” said Mark Erickson, global head of BlackRock’s financial institutions group.
The diversification and the lower volatility of private markets was cited as a main driver for choosing the asset class, according to the report.
48% of respondents said that the opportunity to invest in a new asset class was another reason for wanting to increase exposure to private markets; 41% said that meeting portfolio climate targets was another driver.
“Private assets provide access to opportunities not easily found in public markets, including various types and sizes of companies and targeted strategies especially impact investments, which enhance portfolio returns and diversification,” said Don Guo, group chief investment officer at insurer Prudential.
“They also help dampen portfolio volatility, particularly from non-fundamental, technical-driven fluctuations in public markets.”
Of the 91% who plan to up their private market exposure, the report said that 30% of this cohort intend to increase exposures to investments in private credit in particular.
As banks further reduce lending, the report said that companies will “turn to capital markets, private syndication, and relationships with other sources of non-deposit funding”.
“This tectonic shift in the financial sector opens further opportunities for insurers and asset managers.”
Public market fixed income still core
When it comes to public market debt, many insurers (42% of respondents) said they plan to increase their allocation to government and agency bonds.
The report also found that nearly half (46%) of insurers identify inflation as a major macro risk, and 33% plan to increase exposure to inflation-linked bonds as a result.
Mark Preston, vice president, investment management at insurer Humana said: “Public fixed income remains core to our investment strategy. The predictable cashflow can offset some of our operating costs and help maintain a liquidity buffer.”
However, insurers are cautious about securitised products and below investment-grade debt.
44% of respondents said they are planning to reduce their holdings in residential mortgage-backed securities (RMBS), 38% to collateralized loan obligations (CLOs), 36% to commercial mortgage-backed securities (CMBS), and 31% to below-investment-grade/high-yield bonds.
