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Alternative Market Briefing

Insurers' pullback from hedge fund investments continues for a fourth-straight year

Tuesday, June 02, 2020

Laxman Pai, Opalesque Asia:

U.S. insurers for a fourth straight year reduced their hedge fund investments, to $12 billion in 2019 from $25 billion in 2015.

According to a report by A.M. Best Company, hedge fund holdings went from 1,500 positions to about 900.

Only 10% of A.M.Best's rated universe invests in hedge funds. Long/short equity dropped by $2 billion and multi-strategy dropped by $600 million in 2019, said the U.S.-based credit rating agency for the insurance industry.

Jason Hopper, the associate director, AM Best, addressed why the industry has reduced its hedge fund holdings: "Over the years, hedge funds have become a little less attractive compared with some other investments, given the returns."

"Returns haven't been favorable enough to meet the high fees, as well as the regulatory capital stream imposed by capital charges. … Not only is book adjusted carrying value declining, but the number of holdings has declined as well," he added.

Hopper also highlighted where companies are reallocating the funds that previously had been placed into hedge funds.

"I do not want to necessarily say that money previously going to hedge funds is now distinctly going to some other investment asset class. I do not think that is necessarily the case, but hedge funds are an alternative type of investment."

With the COVID-19-driven market disruptions, Hopper spoke about what AM Best expects on hedge fund investments.

"It is what meets the needs of specific ......................

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