Equities can be a tricky investment for European insurers. On the one hand they can offer returns that vastly beat low-yielding bonds, but insurers must also deal with the volatility in those returns and a substantially larger quantity of risk capital they must put aside under Solvency II.
For insurers seeking exposure to the asset class, they need a manager that can offer market-beating returns as well as servicing Solvency II needs – particularly in terms of the "look-through" reporting requirements. Morgan Stanley Investment Management (MSIM) has successfully provided that. In the 12 months to 31 October 2017, the firm's INVF Global Opportunity Fund Class Z has achieved positive returns for all rolling three-year periods since inception in November 2010.
MSIM says its team looks for high-quality companies they believe have sustainable competitive advantages, and cites its "differentiated thinking, long-term focus and active approach" for the strong results. "This is also a key feature for insurance clients as they typically have to generate substantial amounts of beta and alpha from proportionally, relatively small allocations in order to meet return targets and guaranteed return in their insurance products," the firm says.
The Global Opportunity team, headed by portfolio manager Kristian Heugh, manages £6.8bn of assets, of which roughly £600m is for MSIM's global insurance clients.
In terms of service, the firm has developed insights into its equity pooled vehicles, building a new suite of reports that transforms official fund accounting data into a robust and customisable monthly reporting package. "Since the introduction of Solvency II in 2016 the ability to deliver specialised Solvency II reporting is a key demand from many of our insurance clients," the firm notes.
Insurance investors have appreciated other innovations. The MSIM Global Opportunity investment process has evolved to integrate analysis of sustainability with respect to disruptive change, financial strength, environmental and social externalities and governance (ESG). "Prior to 2017, ESG had been one element of the risk assessment. Today it is a key component in how we define and analyse quality," the firm says.