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Laxman Pai, Opalesque Asia: Insurance companies still allocated nearly $1 billion to new hedge fund investments in 2021, despite significant challenges in the hedge fund industry in 2021, such as the GameStop short squeeze, said a study.
According to the new AM Best report, insurers' holdings increased in 2021 in aggregate book-adjusted/carrying value (BACV) and by the actual number of holdings.
BACV rose to $13.1 billion in 2021 from $12.3 billion in 2020, the second consecutive year that BACV increased after multiple years of divesting holdings in hedge funds, said the report titled, "Favorable Hedge Fund Returns Lead to Book Value Increases for Insurers."
Per the report, despite favorable returns, the hedge fund industry still had trouble in 2021, according to the report; in particular, the short squeeze initiated by retail investors in GameStop and over heavily shorted companies resulted in over $10 billion in losses and led to the collapse of Archegos Capital.
Additionally, stock market volatility toward the end of the year led to some insurers reducing their long/short equity positions, a strategy favored by insurers, it said.
"Hedge funds generally have been perceived as an unfavorable asset class given volatile returns and fee structure," said Jason Hopper, associate director, industry research and analytics, AM Best. "However, during the pandemic, hedge funds offered several advantages to mitigate the adverse effects of COVID-19, including less dr...................... To view our full article Click here
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