Global insurance CIOs have their eye on private credit in 2024, according to Risk & Resilience: The 13th Annual Global Insurance Survey by Goldman Sachs Asset Management.
GSAM’s report draws insights from 359 CIOs and CFOs representing more than $13 trillion in balance sheet assets, conducted in January and February this year. It seeks to identify trends in the global insurance industry and highlight top considerations of insurance investment professionals. The main takeaway for the alternative credit industry is that a significant 53% of insurers say that they plan to increase their allocations to private credit – good for a net 48% when factoring in the 4% who intend to pull back.
“Last year became a fixed income renaissance as insurers renewed interest in the asset class,” said Matt Armas, global head of Insurance at Goldmans Sachs Asset Management. “This year they report taking a risk-on approach and favoring high quality fixed income assets and private credit, which can offer incremental income enhancement, diversification benefits, downside risk mitigation, and resilient returns. This has led insurers into an asset allocation sweet spot, but they recognize that they cannot settle into complacency.”
Indeed, insurers surveyed by GSAM expect US equities and private credit to deliver the highest total returns in 2024, each named first choice by 15% of respondents. Private equity tied for third at 10% with government and agency debt. For the first time, the private equity asset class did not top the list.
“Private credit’s appeal to insurers will endure even as interest rates begin to move lower. Insurance CIOs appreciate the attractive risk-return profile in private credit and the ability of leading managers to source differentiated, risk-mitigated opportunities that can complement their public fixed income exposures,” said Stephanie Rader, co-head of Alternatives Capital Formation, Goldman Sachs Asset Management. “We expect to see continued growth in allocations to private credit from insurers globally.”
The report also asks insurer’s their views on the broader macroeconomy. Concern over inflation reduced to 42%, from 55% last year. And expectations of a US recession in the current year fell to 16%, down from 44% in 2023. Yet longer term recession fears persist, as 50% of respondents expect a recession in the US within 2-3 years – up from 38% in 2023. Still, for GSAM, there are plenty of ways to navigate any potential increased volatility.
“We expect Central Banks to execute gradual easing strategies later this year which should be supportive of risk assets across both fixed income and equities. However, given increasing macro risks and the upcoming US elections, there is the potential for higher levels of volatility along the way and a wide variety of outcomes for returns by the end of the year,” said Alexandra Wilson- Elizondo, Co-CIO of Multi-Asset Solutions at GSAM. “Given this backdrop, and current levels of yields, insurers do not have to stretch on the risk spectrum to seek good risk adjusted returns. We like capitalizing on higher rates by locking in yield in duration, diversifying across public spread products into securitized products, creating sector diversification and gaining exposure to emerging macro investing themes through investments in privates.”
