Insurance CIO sees alts funds helping with high-growth sector exposure

Alternative investment funds are helping insurance companies to diversify their portfolios and invest in high growth sectors such as technology and renewable energy, the CIO of IndiaFirst Life told AsianInvestor.
Insurance CIO sees alts funds helping with high-growth sector exposure

The emergence of alternative investment funds in India has enabled institutional investors to diversify portfolios and access private market assets, although more development is still needed, a senior executive at an insurance company said.

“The alternatives space has been an innovative opportunity for institutional investors to participate in the unlisted space along with traditional asset classes,” Poonam Tandon, CIO of IndiaFirst Life Insurance, told AsianInvestor.

“The AIF platform allows insurance companies to diversify their portfolio and invest in high growth sectors such as technology, renewable energy, healthcare, real estate, and infrastructure for higher returns.”

The growth in the AIF space has been tremendous, driven by macro factors and favourable policy framework as tightening of regulations has increased investors’ confidence, she added.

Having said that, the distribution and fee structure need to moderate, and the need for better transparency and benchmarking must be addressed, she added.

Another insurance executive, Ajit Banerjee, CIO of Hyderabad-headquartered Shriram Life Insurance, also told AsianInvestor recently that AIFs, while still evolving, are increasingly attracting the interest of life and non-life insurers.

AIFs fall into three categories in India: category 1 focuses on startups and infrastructure; category 2 focuses on private equity funds, private debt funds and fund of funds, while category 3 covers investments in listed and unlisted derivatives.

Insurers can invest in certain AIF segments such as private equity and private debt funds and fund of funds.

Such investments typically don't account for more than 2-3% of an insurer portfolio, according to industry experts.

“Moreover, we are also seeing stable return platforms such as InvITs (infrastructure investment trust) and REITs (real estate investment trusts) gaining importance for long term portfolio,” Tandon said.

InvITs operate like mutual funds, enabling direct investment of money from individual and institutional investors in infrastructure projects.

REITs own or finance income-producing real estate across property sectors, such as healthcare facilities or warehouses. They can be publicly listed or private.

IndiaFirst Life Insurance Company, headquartered in Mumbai, is a joint venture between two large state-owned banks, Bank of Baroda and Union Bank of India, as well as Carmel Point Investments India, managed by private equity funds run by Warburg Pincus.

It had assets under management of $2.7 billion at the end of March 2023.

Tandon had previously told AsianInvestor that the investment landscape for India represents the best structural growth opportunities for investors.


However, the results of the crucial general elections -- results were announced on June 5 – saw Prime Minister Narendra Modi’s party lose its majority in Parliament, signalling a return to coalition politics, will have implications for investors, local and foreign.

“Markets had factored in the best possible outcome [a majority vote] and valuations are rich,” Siddarth Bhamre - head of research at India’s Asit C Mehta Investment Interrmediates, said in a June 4 note.

“However, the market is aware of the challenges associated with coalition government. Now with election results not being one-sided, we are witnessing profit booking.”

“We believe this profit booking may continue for some more time. Though we expect some correction to continue in the market, it would not be fair to consider it as the end of the bull market. Most likely this correction may turn out to be a hiccup in the long-term bull run,” the note said.

Before the election results*, Tandon highlighted one of the domestic challenges to markets this year was a risk to the macro environment through rupee depreciation and therefore, there was a risk of the current account deficit deteriorating.

“We are also closely monitoring the economic growth in key developed markets such as the US, which can be at risk of tumbling into recession if credit conditions remain tighter for long,” said Tandon.

“Further, geopolitical headwinds such as the ongoing Russia-Ukraine and Israel-Hamas issues, the impacts of which are still evolving and unknown in case of any further escalation, could put pressure on oil prices apart from other disruptions.”

The recent general elections have thrown up surprising results for the ruling party. Pictured is India's old parliament building. Image credit: Shutterstock


Investors also need to be cognisant of other challenges facing the Indian economy.

“Domestically, a challenge for India is the effect of El-Nino as food prices are already at elevated levels. This can further impact inflation and rural demand, thereby restricting the Reserve Bank of India’s ability to cut rates in coming months,” she said.

Other experts have also flagged that India could be negatively impacted by El Niño - a warming climate pattern -- if the monsoons bring less rain.

"More than half of India’s agricultural land is not irrigated, so we would expect that to result in lower rice output. Research from HSBC in 2014 suggested if rainfall dips by 20%, Indian inflation could increase by 2.8% and the consumer price index by 1.3%,” a May note from Aviva Investors said.

“An inflationary increase of that size could challenge the government’s ambition to reduce its food subsidy programme for 800 million people, and potentially impact the central bank’s interest rate strategy.

"If we take this thinking forward, you can understand why sectors and companies with high exposure to rural incomes, including Indian banks and insurers, might also be affected,” the note added.

*This interview was done before the India general elections results were announced.

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