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5/13/2015
BlackRock, Waddell & Reed Grab Assets as Insurers Increase Outsourcing | 929 Media
İŇȘȚİȚŲȚİǾŇǺĿ İŇVĚȘȚǾŘȘ, PŘǾĐŲČȚ ĐĚVĚĿǾPMĚŇȚ
BŀǻčķŘǿčķ, Ẅǻđđěŀŀ & Řěěđ Ģřǻb Ǻșșěțș ǻș İňșųřěřș
İňčřěǻșě Ǿųțșǿųřčįňģ
05/12/2015
Christopher Smith
BlackRock, Franklin Templeton and Waddell & Reed are each finding opportunities to gain more intuitional
assets through insurance companies, now a growing opportunity for the fund industry as more firms look to
capitalize on the insurance industry’s need for additional investment income.
Each firm mentioned during their recent earnings calls that the insurance space is specifically an area contributing
to their success on the institutional side of business.
Waddell & Reed’s Chief Marketing Officer, Tom Butch, cited “a couple wins” the firm sees as significant and likely
to grow. Franklin CEO Gregory Johnson said his firm made institutional business overall a priority, and insurance
now represents one of a few areas where the firm has penetration it didn’t have before.
More significantly, BlackRock CEO Larry Fink said the firm saw more than $9 billion in “solutions­based fund for
insurance clients in the quarter as they continue to search for holistic solutions to navigate a low­yield
environment.”
“The space has never been hotter. It’s hotter than ever,” says Stewart Foley, founder and partner of Insurance
AUM, which consults asset managers, hedge funds and private equity firms to help grow their insurance general
account assets under management. “A lot of [managers] want in to the insurance asset space.”
Insurer’s outsourcing their general account assets, or assets used to cover benefits, claims and other obligations,
is a trend that has been rapidly unfolding over the last few years. Since 2009, insurers’ outsourced general
account assets have risen from $900 billion to over $1.6 trillion, according to data from the Insurance Asset
Outsourcing Exchange, a data and research provider on the insurance general account investment management
industry.
“Fǿř čěřțǻįň mǻňǻģěřș, įț’ș ǻ ģřěǻț țįmě fǿř țħěm țǿ țřỳ țǿ țǻřģěț įňșųřǻňčě
čǿmpǻňįěș.”
While outsourcing has grown significantly among insurers in recent years, the space remains fertile ground for
managers to attract more assets. Insurers currently outsource approximately 17% of their assets to external
managers. That figure is estimated to rise to 20% by 2019, according to the Insurance Asset Outsourcing
Exchange
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5/13/2015
BlackRock, Waddell & Reed Grab Assets as Insurers Increase Outsourcing | 929 Media
The main catalyst driving interest is the insurer’s need to enhance their investment returns with historically low
interest rates continuing to weigh down their portfolios.
At the same time, other sources of institutional assets, such as pensions or endowment funds, are more heavily
consulted with a lot of concentration around certain managers, says Foley. Insurance general account assets on
the other hand are not heavily consulted and only have a portion of their trillions of dollars in assets outsourced to
investment managers. “So there’s a lot of interest in this space,” he adds.
Particularly, the opportunity for managers to attract assets exists outside of core fixed income strategies. “Core
fixed income, high grade A or better, is not where the majority of the opportunity lies. There are already big, major
well­established players,” such as BlackRock and Deutsche, Foley says.
Fixed­income strategies like high­yield bonds, bank loans, collateralized loan obligations, commercial mortgage
loans, emerging market debt, and other assets such as real estate, low volatility equity, high­dividend equity and
hedge funds are some areas where managers can fill a need for an insurer, he says.
Goldman Sachs Asset Management’s 2015 Insurance Survey released in April, which included responses from
267 CIOs and CFOs from insurance companies representing $6 trillion in global balance sheet assets, notes the
top asset classes insurers are considering for outsourced management over the next 12 months are hedge funds,
emerging market equity, U.S. investment grade corporates, private equity, high­yield debt, middle market
corporate loans, real estate equity and emerging market debt. Maggie Ralbovsky, managing director at
Wilshire Consulting, which advises
insurance companies among other
institutional investors, has seen similar
interest in some of the aforementioned
asset classes given the current low yield
environment, noting, “For certain
managers, it’s a great time for them to try
to target insurance companies.”
“If a manager can have multi­credit
approach that addresses their desire to be
tactically shifting across the whole
spectrum of credit segments, that
manager will be very well positioned,” she
says.
Credit: GSAM Insurance Survey "Too Much Capital, Too Little Return."
Further, managers that can be more
creative with their illiquid fixed­income
offerings so their products that are more
“insurance friendly” will find success as
well, Ralbovsky says.
For example, Goldman came up with a
strategy to syndicate individual loans so
the insurance company didn’t have to participate in a commingled fund structure, Ralbovsky recalls. That’s
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5/13/2015
BlackRock, Waddell & Reed Grab Assets as Insurers Increase Outsourcing | 929 Media
important because when an insurer invests in any commingled fund it’s treated on their books as an equity
security capital charge, which can be upwards of 30% whereas a fixed­income capital charge is just a few
percentage points.
It’s also import for managers to ensure they offer products around the insurer’s needs. Many private lending vehicles get people locked up for five years, which can be troublesome for insurers needing
to meet specific requirements to pay its policyholders. However, Deutsche offers a private lending product offering
income distribution every quarter. That can help insurers meet their yield targets, Ralbovsky notes.
Still, as insurance companies gain comfort with new asset classes and look to diversify their manager rosters,
managers without a complete understanding of each insurer’s specific needs won’t get very far as no two
companies are alike.
“The general account is literally the life blood of the company,” says David Holmes, partner at consultant Eager,
Davis & Holmes and founder of the Insurance Asset Outsourcing Exchange. A manager is not going to win a
mandate if they don’t understand inside and out what the insurers regulatory or credit ratings agency requirements
are, he says.
The investment guidelines for each insurance company differ depending on state requirements, and the business
needs of each company vary based on the nature of their liabilities and capital positions.
Insurers are also more risk averse than other institutional investors and have long­term investment outlooks that
can lead to a long­term sales cycle for asset managers sometimes spanning two to three years, Holmes says.
“It’s a comfort sale. It’s not all about returns,” he continues. It’s about the insurer understanding the manager’s
business and vice versa.
MǾŘĚ İŇȘȚİȚŲȚİǾŇǺĿ İŇVĚȘȚǾŘȘ ǺŘȚİČĿĚȘ
ČǻŀPĚŘȘ Řěčǿňșįđěřș Fǿșșįŀ Fųěŀ Đįvěșțměňț
ČǻŀPĚŘȘ ǻppěǻřș țǿ bě bǻčķpěđǻŀįňģ ǿň įțș đěčįșįǿň țǿ ķěěp fǿșșįŀ fųěŀ čǿmpǻňįěș ǿųț ǿf įțș pǿřțfǿŀįǿ.
Přěșșųřě Mǿųňțș ǿň Bįģ İňvěșțǿřș țǿ Řěđųčě Čŀįmǻțě Čħǻňģě Řįșķ
Țħě mǻjǿřįțỳ ǿf țħě ẅǿřŀđ’ș ŀǻřģěșț įňvěșțǿřș ǻřěň’ț đǿįňģ ňěǻřŀỳ ěňǿųģħ țǿ ħěđģě ǻģǻįňșț čŀįmǻțě čħǻňģě řįșķș įň țħěįř pǿřțfǿŀįǿș, ǻňđ
țħěỳ mǻỳ șǿǿň fįňđ țħěmșěŀvěș įň čǿųřț ǿvěř įț.
Čǿmpěňșǻțįǿň ǿf Pěňșįǿň Fųňđ ČĚǾș Čǿměș ųňđěř Fįřě
Pěňșįǿň pŀǻňș ǻňđ țħěįř pǻřțįčįpǻňțș ǻřě bųțțįňģ ħěǻđș ǿvěř ħįģħ čǿmpěňșǻțįǿň ŀěvěŀș mǿřě ǻňđ mǿřě fřěqųěňțŀỳ, ǻňđ įț’ș ģǿțțěň țǿ țħě
pǿįňț ẅħěřě șǿmě ǻřě șǻỳįňģ ěňǿųģħ įș ěňǿųģħ.
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