In this episode of AMBestTV Jason Hopper, associate director, AM Best, said U.S. insurers for a fourth straight year reduced their hedge-fund investments, to $12 billion in 2019 from $25 billion in 2015. Click on http://www.ambest.com/v.asp?v=ambhedgefunds520 to view the entire program.
Hopper addressed why the industry has reduce its hedge fund holdings.
"Over the years, hedge funds have become a little less attractive compared with some other investments, given the returns," said Hopper. "Returns haven’t been favorable enough to meet the high fees, as well as the regulatory capital stream imposed by capital charges. … Not only is book adjusted carrying value declining, but the number of holdings have declined as well."
Hopper also highlighted where companies are reallocating the funds that previously had been placed into hedge funds.
"I do not want to necessarily say that money previously going to hedge funds is now distinctly going to some other investment asset class. I do not think that is necessarily the case, but hedge funds are an alternative type investment."
With the COVID-19-driven market disruptions, Hopper spoke about what AM Best expects on hedge fund investments.
"It is what meets the needs of specific insurers on a case by case basis, whether they have the investment expertise to continue to branch out. … I imagine many companies are looking at their total investment portfolios and trying to figure out a way to navigate through this current environment."
To access the related special report, titled, "Insurers Continue to Reduce Hedge Fund Exposures," please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=297365.
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