In third-quarter earnings calls, executives from asset management firms highlighted opportunities in the insurance space, discussed the continued demand for private credit and reiterated the importance of focusing on operational excellence.
Here are some of the key takeaways, based on companies’ quarterly reports and earnings calls.
1. Insurance is top of mind
Asset managers are looking to the insurance sector to significantly boost recurring fee-earning assets under management (AUM). As of Q3, insurance assets made up between 6% to 50% of total AUM among the large publicly traded asset managers. Several prominent firms have announced expansion of their insurance assets, with five leading firms adding over $450 billion combined in assets under management as of Q3, with plans to continue their expansion within this sector.
Asset managers are benefitting from the fact that insurance companies are increasingly outsourcing their more complex investments such as private equity, private credit, and infrastructure. According to a Goldman Sachs survey, 51% of global insurance sector investment professionals expect to increase their allocation to private assets. That figure jumps to 55% in the Americas and 61% in Asia.
The expansion into the insurance sector looks different across the various asset managers. While some are increasing their alternative allocations, others are expanding their presence through the acquisition and management of insurance companies. Regardless, opportunity in the insurance space is top of mind.
2. Continued demand for private credit and infrastructure
Performance related to private credit strategies has shown significant strength across the board. Although the dominant private credit strategies asset managers are employing continue to be direct lending and distressed debt, firms are diversifying into other areas such as liquid credit and structured products. Investor demand in the private credit segment has continued to grow across all channels. According to alternative asset data company Preqin, private debt-managed assets are expected to reach $2.8 trillion by 2028, increasing 11% compounded annually from 2022.
Separately, infrastructure assets have been among the best performers, returning double-digit gains in Q3 for some managers. These firms are capitalizing on the enormous funding needs for infrastructure projects globally related to energy transition, data centers, and transportation. The increased interest around private credit and infrastructure has helped boost fundraising in a challenging year. One leading firm generated nearly $3 billion of net inflows in Q3 driven by both infrastructure and private credit, according to its earnings call.
3. Operational excellence
Challenging is the best word to describe the overall operating environment for asset managers in 2023. This sentiment is being driven mostly by global market volatility, high interest rates, geopolitical turbulence, and regulatory changes, among other factors. Today’s environment being less favorable for realizations, has caused a decrease in exits across the sector, and in turn, an increased focus on creating value through the operations of existing portfolio investments. Now more than ever, asset managers are having to execute on operating plans to enhance long-term value and increase returns to investors and shareholders.
