As global investors struggle to secure returns amid global uncertainty over Covid-19 and US-China tensions, the potential for mounting global inflation could well push more insurers into more private assets and particularly private debt, believes a top head of insurance coverage for a fund manager that invests billions on behalf of its insurer parent.

Pu Jingsu at MetLife Investment Management (MetLife IM) told AsianInvestor that the financial market is keeping a weather eye on inflation and the credit cycle, and bracing for a shock from increasing prices.  

Pu Jingsu, MetLife IM

“Whether inflation will be a real problem is still uncertain, although the concern has partly been reflected in the market,” said Pu who - as senior vice president, insurance strategy and solutions at MetLife IM - manages billions in global assets for Metlife's general accounts, as well as institutional investor clients.

With inflation a challenge for insurers, whose portfolios are mainly focused on fixed income assets, Pu said that, broadly, he has seen a greater interest from institutional clients in allocating more capital to private assets than in previous years.

“In terms of market geography, US private capital is still among their top choices,” said Pu who is also head of Asia ex-Japan, institutional client group, at MetLife IM.

ILLIQUIDITY PREMIUM

Pu said that for investors in the current low interest rate environment, assets such as private debt could provide them with additional returns and diversification, as well as provide additional levels of protection for their current portfolios.

“Though less liquidity exists in such assets, long-term investors, like insurance companies, can benefit from the illiquidity premium. For these investors, private debt is often a good match for their long-term liabilities,” he said.

As of March 31, 2021, MetLife IM had a total assets under management (AUM) of $642.4 billion globally, roughly 12% of which was invested into private or alternative assets such as real estate equity, bank loans and private infrastructure.

Most of its AUM is sourced from its own general accounts, but it includes $162.8 billion AUM for unaffiliated third-party clients such as insurers, public and private pension funds and other institutional clients. As of the end of 2020, its Asia AUM stood at approximately $147.8 billion out of the total $659.6 billion pool.

RISING INTERESTS

Metlife IM is not the only insurer-affiliated investor seeing increasing interest in private assets.

German insurance giant Allianz’s latest $150 million commitment to an Indian real estate debt fund marked the latest step in a plan to raise its investment in the country’s private debt market from $650 million to $1 billion by the end of this year.

In February, DGB Life Insurance, a mid-sized insurer in Korea, said it planned to increase its alternatives allocation up to a range of 8-10% this year, particularly in private equity and private debt in overseas market.

A December research paper by PwC predicted that assets under management in private market strategies are likely to grow between $4.2 trillion and $5.5 trillion in the period to 2025, boosting aggregate AUM in the sector to between $13.7 trillion and $15 trillion.

PwC forecasts private markets will represent more than 10% of global AUM by 2025.

Source: PwC 

TAILOR-MADE ESG

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ESG, meanwhile, is something that institutional investors are increasingly focused on, although its maturity varies between regions and countries, Pu said. He said he believed this trend would persist for many years and investors were already actively engaged in it.

MetLife IM currently has a $58 billion responsible investment portfolio, which he said continued to see growth.

“ESG should be tailored for different asset classes, helping to fully capture the most effective level of ESG integration. We are seeing this trend to make ESG more actionable and measurable,” he said.

MetLife Investment Management in Hong Kong and Japan has a total of around 50 staff. Going forward Pu said “we are always reviewing potential business expansion, both in products and in team scale, as appropriate and according to client needs”.