US equities/private credit expected to deliver highest total returns for global insurers

Written by Adam Cadle

02/04/2024

Global insurers expect US equities and private credit to deliver the highest total returns in the next 12 months, Goldman Sachs Asset Management’s latest insurance survey has revealed.

Fifteen per cent of insurers said this will be the case in the investment manager’s Global Insurance Survey 2024, with 10% stating that private equity and government and agency debt will deliver the highest total returns. Private equity secondaries and cash and short-term instruments followed closely behind.

“The increased interest in private assets and the rapid growth of alternatives over the past five years has led many institutional investors to over-allocate to illiquid assets,” Harold Hole, global head of vintage strategies at Goldman Sachs Asset Management, stated. “For that reason, 2024 presents a compelling case for PE secondaries.”

Over half (53%) of global insurers are looking to outsource private credit strategies to third-party asset managers. Private equity and developed market investment grade corporate debt follow, with 35% and 28% of insurers respectively.

Cryptocurrencies are expected to deliver the lowest total returns over the next year according to 21% of global insurers, and the challenges in the real estate market have made insurers cautious of investing further, with 34% of respondents believing real estate asset classes will deliver some of the lowest total returns.

On the macro outlook, 52% of insurers ranked economic slowdown/recession in the US as one of their macroeconomic concerns as it relates to their investment portfolios, while 48% cited concerns with credit and equity market volatility and 46% cited geopolitical tensions.

Following an aggressive rate hiking cycle, coupled with a general view that rates have peaked, a net 37% of respondents expressed their intention to increase duration risk in 2024 (the highest amount in the survey’s history), thereby locking in higher yields on fixed income securities. A net 26% of global insurers also intend to increase credit risk in their portfolios despite increasing concerns about credit quality.

On the ESG front, EMEA and Asia continue to lead the way, with 95% of insurers across the two regions identifying ESG factors as one of several considerations in their investments. While those in Americas do not identify ESG as a primary driver, the majority do include ESG in their investment decision making.

Environmental factors continue to be the top ESG priority for insurers globally. Insurers in Asia have the broadest ESG focus, with 51% of respondents focusing on governance factors, and 49% of respondents on social factors.

Corporate directives continue to be a key motivator for implementing ESG factors in insurers’ portfolios, coupled with regulatory requirements. Almost a third of respondents in Asia have cited shareholder considerations as a motivator for implementing ESG factors.

Concerning net-zero targets, 59% of global insurers have set these or are considering setting one for their investment portfolios. EMEA is the highest region that has currently set targets, with 54% of insurers having already set a net-zero target. Of the insurers that have set net-zero commitments, 96% are expected to achieve their net-zero target by 2050.

Goldman Sachs Asset Management received responses from 296 CIOs and senior investment professionals, 42 CFOs and senior finance managers and 21 individuals who serve as both CIO and CFO. The insurance companies surveyed have over $13trn in balance sheet assets combined.

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