Insurers worldwide have been growing their allocations to alternative investments as they seek diversification of portfolios traditionally dominated by government and corporate bonds.
The trend is apparent across Europe, the US and Asia, presenting an opportunity for a worldwide player such as JP Morgan Asset Management (JPMAM).
Its alternatives platform currently has $129bn in assets under management and is overseen by a team of more than 350 investment professionals based in 23 locations. The portfolio currently includes hedge funds, private equity and debt as well as global real assets.
Declan Canavan, head of alternative investment strategies EMEA at JPMAM, gives three reasons for the strong growth experienced in recent years.
"First, we have good building blocks in terms of alternative capabilities which are both deep and wide. Many of our businesses have long and established track records through numerous different cycles – this is particularly the case on the manufacturing side. Simply put, we build good houses in the manufacturing space.
"We also put the good growth down to the insurance business model here. The insurance analytical team has done ground-breaking work in how insurance companies should think about alternative investing. This has been done on a multidimensional framework around risk, solvency, and capital charges but also from a portfolio aspect, i.e. how you integrate alternatives into your investment portfolio.
"We've also got a dedicated marketing team, typically staffed by ex-insurance employees and experts in this space."
Canavan says the biggest conversation with clients currently is on "where we are at in the credit cycle. Insurance companies, because of the favourable nature of direct lending or private credit, have substantially increased the allocation to direct lending, both at the senior and the mezzanine level. For all intents and purposes this has been a good move."
Discussions with clients also focus on the opportunities that continue to arise from the banks' exit from credit markets, due to various regulations being imposed on the banking sector.