QBE boosts risk assets to ride AI tailwinds, expands into private credit
Australian general insurer QBE is continuing to evolve its investment portfolio towards higher risk assets, with significant moves into private credit and infrastructure, as it aims to capitalise on AI-driven market trends and navigate the changing economic landscape, Gary Brader, group chief investment officer, told AsianInvestor.
QBE, listed on the Australian Securities Exchange (ASX) and headquartered in Sydney, operates across 26 countries.
With $30 billion in assets under management, QBE has maintained a significant 86% allocation to core fixed income while raising its exposure to risk assets from 12% to 14%, with a long-term goal of 15%, according to it half-yearly results released on August 9.
QBE
"Early this year, we formed a view that there were meaningful AI tailwinds to the equity market. We felt that growth was strong enough, particularly in the US, that policy settings were supportive enough, and that corporate America and other geographies we operate in felt like a decent place to take some risk and be rewarded for it," Brader said.
This strategic move proved well-timed, as the insurer bolstered its equity holdings just before a significant rally in US and European markets.
The company also made significant commitments to private credit and infrastructure.
"Those commitments get drawn progressively, so there's been a natural and anticipated drawdown of those commitments to bolster those sleeves for us," Brader said.
This approach allows QBE to strategically increase its exposure to these asset classes over time, capitalising on market opportunities whilst managing risk.
"Infrastructure is heading towards 4% globally of the portfolio. Private credit will likely end this year around 1.5% and will grow in 2025 as commitments draw capital.
"Equities are around 2.5%, property is around 2%, and high yield and emerging market debt are around 2% each," said Brader outlining the company's diversified risk asset composition.
DIVERSIFIED PORTFOLIO
While its allocation remains modest, QBE has been increasingly focusing on infrastructure and private credit.
The company recently committed over $200 million each to Ares for US private credit and KKR for their diversified core infrastructure fund.
"We were fairly early as a P&C (Property & Casualty) company into infrastructure as an asset class. We hold a little more than our peers on average. It's been a wonderfully resilient performer and has a strong inflation connection," said Brader.
On private credit, Brader is a strong believer in the asset classes’ potential.
"We continue to be constructive on the prospects for growth and value in private credit. We're attracted to the illiquidity premium and the fact that more lending is moving out of banks and into the hands of private credit managers. We think we can gently lean into more of that exposure."
With the majority of its portfolio in fixed income, QBE is closely monitoring potential policy shifts of the US Federal Reserve.
"We, like the rest of the market, expect that the Fed will join many other central banks in starting an easing cycle in the latter half of this year," said Brader.
"We anticipate modestly lower yields over the next 12 months because the Fed will understandably start a gentle series of rate cuts."
TRENDS & OUTLOOK
Looking ahead, QBE is keeping a close eye on several market trends that could significantly impact their investment strategy.
"We see a continuation of the de-globalisation trend, where supply chains are being onshored or friend-shored, and capital is becoming less mobile. This has ramifications for countries and companies we choose to have as part of our investable universe. We're mindful of ensuring our capital is where we feel it's safe, respected, and well-governed," he said.
He also addressed potential challenges in reaching inflation targets.
"While disinflation is largely seen to be well-entrenched, the last mile of reaching inflation targets may prove difficult. We feel having more infrastructure and inflation protection in the portfolio is prudent as we design portfolios for 2025 and beyond."
Brader also sees growing opportunities in infrastructure investments in developed markets, particularly in light of the escalating geopolitical storms and the rising energy demands of AI-driven data centres.
As with most sophisticated institutional investors, QBE's commitment to sustainability is crucial to shaping its investment strategy and portfolio decisions.
Brader highlighted the company's "Premiums for Good" programme, which serves a dual purpose of engaging customers and expanding impact investments.
"This programme is both a piece of customer connection, joining us on a sustainability journey, and gives form to our ambition to grow impact investments as a proportion of the book," he said.
"As we find assets and help create assets that meet our risk and return objectives, we're always looking for investments that also meet the criteria to include in our impact asset portfolio, with deliberate and quantifiable environmental or social benefits."