As yields on developed market securities have been largely sucked dry, insurers needing to cover their liabilities and long-term promises to policyholders have had to look to elsewhere.
Yields on government debt in Europe's eight largest economies have not topped 3% – around the average promise on life business across the region – since mid-2014, when Spanish then Italian paper last sank below that level.
But emerging markets have provided happier hunting ground. David Aird, managing director of the UK client group at Investec Asset Management, said insurers have come to Investec primarily for mandates with emerging markets corporate debt, but the company's multi-asset credit strategy, investing globally across all credit classes, also garnered interest.
"At the more sophisticated end of the market, we have interest in our African private markets capability across private equity, real estate and infrastructure," Aird said. Investec's heritage in South Africa has placed it close to such opportunities. The Insurance Asset Risk Awards judges also praised Investec's activities in African private debt, and the firm's focus on investments that profit from the liberalisation of the Chinese economy.
"We help insurers navigate emerging markets debt as they diversify their investment portfolios in search of capital charge-efficient yield," Aird added. Where underwriters want emerging markets mandates, they commonly require modifications to how fund-based products are run. Typical requests include minimum credit ratings, reducing absolute position sizes amid lower credit ratings and amendments to the duration profile.
Investec has also been approached sometimes for buy and maintain – "for more precise liability matching" - and buy and hold solutions.
Global emerging market and regional equity strategies – Asia Ex-Japan, China and Africa – are more attractive to unit-linked and with-profits providers, where risk appetite is typically higher, Aird said. He added: "We acknowledge the uniqueness of each insurer's liability profile, risk budget and return targets and our role as asset managers to help tailor investment solutions that match these in a capital efficient manner."