Insurers eye increased private assets allocations as inflation protection

Insurance investment managers expect to increase allocations to private assets, citing inflation protection, even as concerns about transparency and reporting remain, according to a new global study.

The research by Ortec Finance, conducted among investment managers responsible for $10.48tn (£7.79tn) in assets under management, revealed that 68 per cent believe private debt will see the biggest percentage increase in allocation in the next 12 months, followed by private equity (49 per cent) and real estate (47 per cent).

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It comes as the study found that more than three-quarters of insurers and insurance asset managers said an increase in capital to invest in their organisation is “definite” or “likely” in the coming year.

Inflation protection was identified as the most important reason to invest in private assets by 35 per cent of insurance investment managers, followed by diversification (30 per cent), while 22 per cent cited cashflow matching, and 13 per cent returns and illiquidity premiums.

However, Ortec Finance, a provider of risk and return management solutions for financial institutions, revealed concerns among those polled that the level of transparency and reporting from private fund managers is “often not robust enough”. 

It reported that 21 per cent were strongly in agreement that these issues prevent insurers from investing in some private funds, due to being unable to demonstrate they are compliant with the regulations they face, while 79 per cent slightly agreed.

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“The study highlights continued momentum behind private asset allocation, with many insurers expecting to see an increase in capital to invest in the year ahead,” said Hamish Bailey, managing director UK and head of insurance and investment at Ortec Finance.

“The motivation is driven by the search for inflation protection in real world assets, diversification benefits, and a long-term focus.”

Bailey added that reporting and transparency are “key barriers”, however.

“Without robust data and disclosures from private fund managers, many insurers face regulatory hurdles limiting their ability to fully capitalize on these opportunities,” he said.

Read more: S&P: Regulatory scrutiny of private markets will support their growth