This year, Aberdeen Standard Investments (ASI) launched a pioneering solution for insurers. The strategy works alongside banks and participates in loans to private-equity funds in the early years of their life cycle.
These loans are short duration and investment grade as determined by ASI using a proprietary rating model for this asset class. The strategy is designed to provide insurance clients with a better return on their assets while maintaining a low level of credit risk.
The solution was developed in collaboration with UK life insurer Phoenix.
"The strategy answers a real need that has arisen following the implementation of the Solvency II regulations," global head of insurance Stephen Acheson at ASI said. "Now the regulations are fully embedded, insurance companies need to identify assets that can both generate a good level of income and enable them to comply with the requirements of Solvency II."
To allow the new solution to be included in Phoenix's internal model, ASI developed a new credit-rating model for the asset class. This involves scoring and rating each of the underlying private-equity funds, an assessment seen as too niche for the major credit-rating agencies.
ASI's global head of private markets Peter McKellar said the solution "can capture private market illiquidity premia and is tailored to helping insurers achieve their financial objectives, particularly with the establishment of a credit rating methodology that enables us to determine credit risk".
Judges praised the strategy ability to enhance returns and noted that it was one of the rare solutions out there for "Solvency II friendly" investment in private equity.