The Asian arm of German insurer Allianz is likely to outsource more of its portfolio to external fund houses as it moves to diversify beyond traditional fixed income and domestic investments. It is seeking a manager for a global equity portfolio and eyeing more alternative assets, in particular infrastructure and private debt.
Allianz IM outsources a smaller percentage of its €25 billion ($27.5 billion) Asian portfolio than it does globally, because in most countries in the region it can only invest domestically. “But we are always looking at opportunities,” said Eugen Loeffler*, chief executive and chief investment officer for Asia at Allianz Investment Management, which runs the insurer's portfolios.
In some Asian markets the firm is considering diversifying into international equity, so it is seeking an asset manager to that end, he told AsianInvestor.
Loeffler expects to do more outsourcing overall, with one focus being alternative assets. “We might engage third-party managers to invest in infrastructure and solar and wind power. We are at an early stage, but it is attractive given our liabilities.”
Allianz IM won’t rush into alternatives overnight; it’s a priority for the next five years. “It depends how the markets, access and regulations develop. We need to build relationships and find managers and partners, so it all takes time.”
The firm is also likely to build its infrastructure expertise in Asia in the coming years, since it has real estate and private equity covered for the region, said Loeffler.
Allianz IM will seek partners for infrastructure investment this year and will consider doing projects related to the recently launched Asian Infrastructure Investment Bank, having already done similar co-investments group-wide.
But Loeffler wants to see more breadth and depth in Asian infrastructure markets. “I would like to see more arrangements to facilitate investment by institutions such as insurance companies. This means greater flexibility in regulation and improved market infrastructure. We also want more managers offering suitable investment vehicles.”
In respect of property, there is a team in Singapore that is part of the global Allianz Real Estate unit and which mostly focuses on indirect investment through unlisted funds, said Loeffler.
However, he thinks the firm will do more direct real estate investments in Asia, similar to the strategy in Europe and the US. Such direct investments will be mostly funded by the insurer’s European or US businesses, which have larger balance sheets, he noted. “Where we can, our Asian units will co-invest.”
When it comes to private financing, this is an area Allianz has moved into globally, being “very active in commercial mortgages and other forms of private debt”, said Loeffler. “In Asia we are lagging, often due to regulation and the state of development of the local markets. We are interested, we are exploring opportunities and I am sure we will do more.
“As an insurance company we can easily offer long-term financing and earn additional spreads," he added, "such as [from] illiquidity or origination.”
Other insurers in Asia are also showing appetite for private debt, as reported. Indeed, this is an area in which investors, both institutional and in the private wealth segment, are showing increasing interest. It was also AsianInvestor's pick as the alternative asset class likely to perform best this year on a risk-adjusted basis.
*An extended interview with Loeffler will appear in the March issue of AsianInvestor magazine, and some of his comments on the challenges of asset-liability management appeared on AsianInvestor.net last week.