As part of its annual institutional investor study, EQuilibrium, Nuveen, a financial planning company states that strategic and tactical asset allocations are evolving, private markets continue to be in favour, and impact investing with balance sheet assets is here to stay. These have been the three biggest takeaways from the report for this year.
In 2022, according to an institutional investor survey done by the company, 67% of insurers globally claimed that the markets beckoned a rethink of portfolio construction. This year 33% of these companies have taken action.
Joe Pursley, the Head of Insurance for Americas at Nuveen, said, “There’s an impressive split between strategic and tactical changes: 31% of insurers globally report making foundational changes to strategic asset allocation (SAA) and 44% are making significant tactical shifts.
“We also see quite a bit of variation in these portfolio changes by region. For example, in EMEA 38% of insurers are making foundational changes to their SAA, compared to 27% in APAC and 17% in North America.”
The drivers behind these allocation changes are the prolonged inflationary environment impact of tactical moves and the continued evolution of sustainability and climate effect in longer-term strategic decisions.
Insurers have started to revisit public fixed income and increased their investments in alternatives. As far as public fixed income goes near the end of the rate-hike cycle, over half of the insurers globally almost 54) are revisiting their public fixed-income exposures.
North American insurers are taking on more credit risk and 39% plan to dial up their credit exposure in the next year. Lengthening the duration of their investment portfolios, 50% of the insurers plan to extend the duration.
According to Nuveen, in private markets, the trend of assets flowing in shows no signs of slowing down. Only 7% of North American insurers plan to decrease allocations to private investments over the next five years. Whereas, 21% of insurers plan to keep their private allocations as they have them currently and 76% plan to increase their allocations. Now, alternative asset classes are high in demand for insurers globally included infrastructure, private credit/equity, and private placements.
Pursley mentioned that. “Impact investing is on the rise with insurers. 82% of global insurers are planning to consider in the next 12 months the impact on investment decisions. This is compared to 74% of institutional investors overall. This response is largely being driven by EMEA insurers, followed by APAC and North American insurance companies.”
For impact-focused insurers, 67% are either currently invested in infrastructure projects or planning to invest in the next two years. Battery storage, direct carbon capture, and Commercial Property Assessed Clean Energy (C-PACE) are timely examples of investments in this category.
Nuveen believes this trend is only going to continue as insurers evolve their SAAs to prioritize things like climate goals and impact key performance indicators. Other highly ranked impact investments were infrastructure projects at 63% and affordable housing which stood at 31%.
