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Alternative Market Briefing

Majority of insurers reduced hedge fund holdings in 2016 because of performance concerns

Tuesday, May 16, 2017

Komfie Manalo, Opalesque Asia:

The insurance industry continued their pullback from hedge funds in 2016 because of rising investor concerns about performance, a special report by A.M. Best showed. The study added that the retreat by the insurance industry from hedge funds was widespread, with 65% of U.S. life/annuity (L/A) insurers and 60% of U.S. property/casualty (P/C) organizations reducing their positions.

The Best's special report titled, "Insurers Continued to Pull Away From Hedge Funds in 2016," states that based on 2016 data from year-end NAIC statutory financial statements, the insurance industry's investment allocations to hedge funds declined approximately 28% to just under $18bn in 2016 from $25bn in 2015.

"Investors have grown impatient as managers charge substantial fees for their services for the industry's below-market returns, and the oversaturation of the competitive market has led to a number of hedge fund liquidations," A.M. Best said. It added, "This has led investors to continue to pull money out at an increasing pace and report five consecutive quarters of net outflows."

The shift away from hedge funds by insurers was led by the L/A sector, which saw a 42% decline to $8.3bn in 2016 from $14.2bn in 2015. While not as drastic, the P/C segment declined by just more than 10%, to $9.1bn from $10.2bn over the same ......................

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