Insurance Asset Managers Increasing Allocations to Private Debt and Decreasing Real Estate Equity: Mercer Survey

Insurance Asset Managers Shift Focus to Alternatives, Increasing Allocations to Private Debt

A recent survey conducted by Mercer and Marsh McLennan revealed that insurance asset managers are overwhelmingly planning to invest in alternatives this year, with a particular focus on increasing allocations to private debt and decreasing allocations to real estate equity.

The survey, which included 84 respondents across 22 markets, found that 39% of insurers plan to increase their allocations in the private markets this year. In total, 73% of respondents either already invest in the private markets or plan to do so in the near future.

Among those increasing their allocations to private market investments, the most popular asset allocations were investment-grade and sub-investment-grade private debt. This shift towards private debt is driven by higher rates, with insurers seeing meaningful spreads and all-in yields that are typically above those of high-yield bonds and leveraged loans.

However, not all insurers are on board with this trend. The survey identified illiquidity concerns and a lack of resources to assess investment opportunities as leading reasons for not making allocations to private markets. Additionally, high fees were cited as a major challenge for insurers when investing in the private markets, with 47% of insurers outsourcing their private market investments to external managers.

Despite these challenges, insurers are optimistic about the potential returns from private debt investments. As insurers strategically deploy excess capital in support of their portfolio objectives, selecting skillful managers for private debt investments is essential, particularly later in the credit cycle.

Overall, the survey highlights a shift in the investment strategies of insurance asset managers, with a growing appetite for private debt and a decreasing interest in real estate equity. As insurers seek to capitalize on opportunities while managing associated risks, the focus on alternatives like private debt is expected to continue to grow in the coming years.