Alternative Opportunities for Insurers | Q1 Update

In our Q1 2024 edition of Alternative Opportunities for Insurers, we continue to cover views on a variety of private asset classes from Invesco Solutions and our partner firms. Within this piece, we’ll present a framework for analyzing across alternative markets to help inform insurers’ investment decisions.

Private credit

We expect that the current environment will lead to improved deal activity even in light of significant capital being allocated to the space. As such, we believe that there may be a case for insurers, who have ramped up their private credit allocations in recent years, to stay the course. Our anticipation of an improved opportunity set within distressed and special situations debt means insurers may see more opportunities for equity-like returns in their private credit bucket, which enhances capital-efficiency. Commercial real estate debt is anticipated to remain highly attractive in both economic and capital-adjusted terms as well.

Private equity

Broadly speaking, we encourage insurance clients to be selective in their private equity allocations in the current environment. Strategies that rely heavily on leverage may struggle to deliver strong risk-adjusted returns in the current interest rate environment.

Real assets

While insurers’ recent hesitation to invest in real estate equity exposure is understandable, we believe we are approaching a point in the economic cycle where this will shift, particularly for U.S. life insurers with longer time horizons and lower risk-based capital requirements. Although real estate transaction activity remains muted, income fundamentals are strong. Infrastructure, though valuations are perhaps still somewhat elevated relative to rate levels, will likely continue to be attractive for insurers outside the U.S. who are looking for higher return potential in a relatively capital-efficient asset class that also diversifies from their predominant asset risk exposures.

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