A.M. Best Briefing: A.M. Best Comments on Insurers’ Hedge Fund Activity

OLDWICK, N.J.--(BUSINESS WIRE)-- Reports regarding the recent underperformance of the hedge fund industry have prompted some insurers to reconsider their current investment allocations to this non-traditional asset class, according to a new briefing from A.M. Best.

While most hedge fund investors in the insurance space are disappointed, and justifiably so given the disappointing returns, there just aren’t many other attractive alternatives for them to invest in this current low-return environment, according to the Best’s Briefing, “A.M. Best Comments on Insurers’ Hedge Fund Activity.”

Many believe that insurers jumped into the alternatives arena more heavily over the past few years in an effort to boost returns through taking on additional credit and liquidity risk. However, exposure to alternatives, including hedge funds, also represents a prudent portfolio allocation for those companies with the ability to trade off some liquidity while improving overall portfolio diversification.

The briefing notes that in the past this hedge fund allocation was primarily a tool for investing “excess” surplus. Many hedge fund portfolios are now allocated to back specific lines of business, and therefore, the variability of returns receives heightened exposure each quarter.

The hedge fund industry saw outflows of $15.1 billion in the first quarter of 2016. Based on a market estimated at $3 trillion, these outflows represented approximately half of 1%. As a whole, the industry lost about 1% in 2015 with some managers down double digits, according to the briefing.

Overall, the hedge fund industry remains resilient and perhaps today is more flexible than in the past. This includes, for example, stepping into the void created by banks backing away from certain types of lending. With this, A.M. Best still believes we may see a further pullback from direct investments in hedge funds over the short- to medium-term as companies try to ride out the volatility on the sidelines.

To access a copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=249254.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160516006508/en/

A.M. Best
Ken Johnson, CFA, CAIA, FRM, +1 908-439-2200, ext. 5056
Vice President
[email protected]
or
Jim Peavy, +1 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
[email protected]
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Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
[email protected]

Source: A.M. Best

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