Global insurers who oversee more than $6 trillion in assets plan to invest capital in commercial mortgage loans and private equity this year to generate higher returns, a Goldman Sachs Asset Management survey showed.
Thirty-five percent of insurance executives said they plan to invest in the mortgages, 30 percent in infrastructure debt and 29 percent in private equity and middle market loans, according to the survey published Wednesday. About 66 percent of the 267 chief investment officers and chief financial officers said low yields were the greatest risk to their portfolios.
Insurers’ income from fixed income investments has dwindled after central banks expanded their stimulus programs. Executives say they don’t expect to see any “meaningful increase” in interest rates this year. Zurich Insurance Group AG said this week that it started to buy junk bonds after yields on investment grade debt turned negative.
“Insurers are concentrating on finding new investment opportunities, which are sparse because yields still remain at low levels,” said Michael Siegel, GSAM’s global head of insurance. They “believe equities will outperform credit and are looking to increase allocations to less liquid, private asset classes.”
Private equity, U.S. and European equities are expected to generate the highest returns this year, according to the survey, conducted between Feb. 3 and Feb. 25. More than 60 percent of respondents said investment opportunities were getting worse compared with 39 percent with that view last year, Goldman Sachs said.
BlackRock Inc. CEO Laurence D. Fink said Tuesday that central bank policies were “destroying the viability of insurance companies.” He joined executives including MetLife Inc. CEO Steve Kandarian and AXA SA’s Henri De Castries in lamenting that low interest rates are punishing insurers.
U.S. insurers have the greatest appetite for commercial mortgage loans, the survey showed. Firms in Asia and Europe want to invest more in infrastructure debt and U.S. investment grade corporate debt.
Most respondents said the industry took on an appropriate amount of investment risk, while 21 percent thought peers took too much risk.
Sanford C. Bernstein analysts warned in February that the European Central Bank’s bond buying program may accelerate the creation of credit bubbles, driven by insurers who are among the biggest buyers of debt.
Most respondents expected the 10-Year U.S. Treasury yield to not exceed 3 percent this year. More than 70 percent saw equities returning between zero and 10 percent.
Goldman’s asset management unit oversees more than $160 billion in insurance assets.