Insurers are increasingly concerned that the swelling tide of money flowing into asset classes such as private equity and property is eroding their illiquidity premium.

And this trend is making it harder to pick attractive entry points in private markets, heard the audience at AsianInvestor’s Insurance Investment Forum last week.

“I wish I had a dollar for every time I read a release saying a sovereign wealth fund or pension fund is going into private markets to gain an illiquidity premium – and then you see them investing in Australian infrastructure at a single-digit IRR [internal rate of return],” said Paul Carrett, group chief investment officer at Hong Kong’s FWD Insurance.

Insurers entering private markets a few years ago are likely to have done very well, he noted. But one of the biggest challenges now is deciding how to access such investments, such as deciding on which type of assets and which vintages to buy, said Carrett, speaking on the keynote panel.

Some of the smaller local markets in Asia may still offer opportunities, he added, given that they have likely been less heavily tapped by big private equity firms. “But how we rotate into those sectors will be very important to the ultimate returns we get.

“Given that three of my fellow panelists are going into private markets, I’m certainly worried about them getting more crowded,” he quipped.

Late to the party?

Indeed, other insurance executives have told AsianInvestor that they harbour concerns about potentially being late to the private-markets party.

A big obstacle for insurance firms is that they tend to face heavier restrictions on their investments than, say, sovereign wealth funds, which made relatively early moves into illiquids.

Even the bigger, more sophisticated insurers are moving cautiously to build their private-markets exposure.

Mark Konyn, group CIO of Hong Kong-based insurer AIA, said his firm was slowly building positions in assets such as private equity and private debt. It has taken time to demonstrate internally how these investments fit the company’s risk appetite and benefit the overall risk profile, he noted, speaking on the same panel as Carrett.

New types of assets, in particular, are often harder to get approved because they have short track records, agreed Jeffrey Tan, regional investment director at Belgian insurer Ageas. Also speaking on the panel, suggested that there needed to be a change in mindset when it came to new products.

Another issue is the lack of variety in private assets and lack of depth of derivatives markets in Asia compared to Europe or the US, noted AIA’s Konyn.

As a result, he said, “you really have to think about diversification in a constrained situation – and constantly try to push the envelope and liaise with the regulatory authorities”.