American business insurer FM Global is on the search for managers to help with Asia investments as it builds its portfolio outside the US.
“Asia will be where growth will come from, and we will continue to seek partners there as we continue to tilt our international allocation towards Asia and Europe,” Sanjay Chawla, chief investment officer at FM Global, told AsianInvestor.
“Our usage of external mandates has evolved over the past five years, where we have diversified and leveraged the ecosystems offered by top quartile sophisticated, niche managers.”
FM Global is a leading US business insurer with a focus on property insurance, and has about $22.5 billion in invested assets at the end of December 2022, according to its annual report for the year, released in early May.
Chawla, who is based in the US, joined FM Global as CIO in March 2018 and is charged with overseeing the firm’s general account and pension assets.
The insurer has told AsianInvestor that it plans to increase its allocation to Asia.
FILLING THE GAPS
FM Global has historically focused on developed markets, with a focus on the US. In the past five years, allocation to non-US markets, including Asia has climbed to 12-15% from about 5%.
The insurer's investment team consists of about 35 subject matter experts, Chawla said.
“We do not need to have a lot of managers or strategies, and this has allowed us to have selective, strategic partnerships,” he said.
“We look for the gaps we need to fill, conduct a very systematic search and perform the necessary steps in the investment diligence process.”
FM Global did not say how many managers it currently works with or what asset classes the insurer is considering in Asia.
The insurer is also a firm believer in harnessing the use of artificial intelligence (AI) and technology more broadly in investing, and is keen to work with asset managers who have expertise in this arena.
“Currently from an investment perspective, we look to partner with sophisticated external managers who have already built out advanced AI ecosystems, and are well supported by leading-edge technology,” said Chawla.
FM Global is also building out its own internal quantitative analytics platform.
Chawla noted that the team overseeing this platform has grown strategically as data science gains ground. “We are extremely positive about the role technology plays in enabling us to generate additional positively differentiated value, allowing us to stay ahead of the curve,” he said.
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Like several other asset owners, the insurer approaches portfolio construction with a long-term lens, and with a focus on quality. ESG criteria are an important component in this process.
“Our focus is now evolving to incorporate the ESG lens and analytics where relevant and feasible, working with our partners and peers, and building tools internally to support our analytics. Overall, we are approaching ESG thoughtfully and gradually,” said Chawla.
The insurer has allocated capital to some dedicated sustainability-oriented investments with managers, and some traditional strategies have ESG considerations integrated in the investment process.
Chawla noted that when the insurer engages with peers, it’s obvious that everyone has different mandate and objectives with respect to ESG. “We take a long-term approach by using broad benchmarks and continuing to research and select high-performing, quality-driven strategies,” he added.
SELECTION IS KEY
Overall, the US entity takes an extremely strategic approach to investment, with security selection and strategy being key focus areas.
“The technology sector was a key building block as markets surged in 2020, and as innovation continued to drive growth and valuations. There is an obvious concern that valuations surpassed fair values, with exuberance becoming irrational once again. We saw a meaningful correction in the technology sector last year, but the concern remains that there may be more of a correction to come with the advent of a potential recession,” said Chawla.
In contrast, energy went up in 2022 and healthcare performed reasonably well.
All the energy companies on the widely tracked S&P 500 benchmark finished the year with gains, as global energy prices soared amid a prolonged Russia-Ukraine conflict. The index itself dropped close to 20%.
“Given the dispersion, the market environment is expected to continue to reward selection, and we remain focused on high quality, innovative growth stocks and strategies that may have over-corrected or have limited downside from current levels. In the long run, high quality innovation will be rewarded by markets,” Chawla said.