Income Insurance to add to private credit amid sliding rate outlook
Singaporean life insurer Income Insurance is ramping up its exposure to private credit as a new portfolio allocation, placing its sights on lower risk charges and higher income amid expectations of declining interest rates in the US.
“We are most active in private credit [within private markets]. For us, it’s a new allocation so it’s less mature. The deployment is still below allocation,” said Agnes Chew, an investment senior manager at Income Insurance who looks after external fund management.
Chew spoke at AsianInvestor’s Insurance Investment Briefing in Singapore on September 3.
Chew told a panel that Income Insurance has invested in private equity and real estate for over 10 years, but private credit, initiated three years ago, was a relatively recent addition to its alternative-assets bucket.
She highlighted the “substantially” lower risk charge for private credit compared to private equity and real estate. While returns also tended to be lower, Chew said they offered decent income.
Income Insurance doesn't rely on alternative assets for liquidity needs. Instead, it utilises private markets to access illiquid premiums and to generate higher returns than from its public market exposures.
Access is mainly facilitated through fund vehicles. It also has some direct real estate assets and co-investments in private equity.
At the end of 2023, Income Insurance had $43 billion in assets under management.
German insurer Allianz recently announced an agreement to acquire a 51% stake in Income Insurance.
FIXED INCOME EXPOSURE
While the US Federal Reserve is expected to cut interest rates as soon as this month, Chew believes rates will remain above 3%, and make a strong case for private credit investment.
“When we started private credit allocation, it was a fixed income replacement. So either way, we are subject to the base rate volatility anyway. We like floating rates. And there is the illiquid premium,” she said.
As the insurer gains more experience in private credit, it may pursue co-investments with other general partners (GPs), she said.
In real estate, Income Insurance plans to shift its focus toward sectors with stronger structural tailwinds such as logistics, residential, and life sciences. Currently, it has a larger exposure to office and retail properties.
While the insurer has not made infrastructure investments for some time, it is reviewing its stance on the asset class, subject to regulatory requirements from the Monetary Authority of Singapore.
The firm has exited hedge fund investments, according to Chew.
RISK MANAGEMENT
To effectively manage risks in its private market exposure, Income Insurance looks to careful due diligence and diversification.
“We need to meet our [long-term] liabilities, so that helps…We just have to do more careful front-end due diligence,” Chew said.
“We also try to diversify across different strategies, asset types,” she added. “Hopefully not everything goes down at the same time, and [from] some part of your portfolio you can still generate some liquidity.”
While private market valuations generally lag behind those of public markets, Chew pointed out that since Income Insurance doesn't rely on private assets for liquidity needs and its private market positions are a smaller part of the portfolio, the firm is less concerned about potential valuation lags.
However, from a total portfolio management perspective, she highlighted the importance of effectively tracking the entire portfolio’s performance, including alternative assets, to be able to review asset allocation strategies from both strategic and tactical angles.
“We do maintain an overview of the performance of the entire portfolio and how it moves,” she said, noting that the insurer relies on service providers and regular valuation reports from private fund managers to maintain such oversight.
GAINING TRACTION
Insurers around the globe appear to be shifting from fixed income into floating-rate private credit as they position for higher interest rates, according to Gene Miao, senior investment strategist at Churchill Asset Management.
Most recently, investors have been moving allocations from private equity buckets into senior direct lending or private credit with some leverage to generate mid-to-high-teen returns in a diversified portfolio of senior underwritten loans, Miao said at the insurance event.
US-based alternative asset manager Churchill Asset Management looks after about $50 billion in assets, half of which are managed on behalf of its parent company TIAA, an insurance company for American educators.
The other half of the firm’s capitals are third-party assets.
Churchill also sees interesting opportunities in private equity secondaries, specifically continuation vehicles.
As the private equity deal-making frenzy cools, fund managers are holding onto their assets longer and delaying the launch of new funds, Miao noted. This has created an opening for secondary investors to provide liquidity solutions through continuation vehicles.
"Private equity firms are coming around, looking to folks like us for continuation vehicles for them to bridge to their next fundraising," he explained.
"Those situations present pretty interesting opportunities for alternative asset managers like us, who know their way around."