KKR’s Henry McVey Says Insurance CIOs Plan to Increase Allocations to Non-Traditional Assets
30 April 2024 - 1:00PM
Business Wire
Proprietary Survey Highlights Why There is “No
Turning Back” to Traditional Asset Allocation After the Recent
Surge in Interest Rate Volatility
KKR, a leading global investment firm, today released “No
Turning Back,” a new Insights piece by Henry McVey, CIO of KKR’s
Balance Sheet and Head of Global Macro and Asset Allocation
(GMAA).
Based on a proprietary survey of nearly 50 Chief Investment
Officers (CIOs) who collectively oversee over more than $8 trillion
dollars in assets, the report examines how leading insurance
companies are navigating and evolving their asset allocation
priorities for today’s more volatile interest rate environment.
Specifically, McVey notes that allocations to non-traditional
investments have remained high, even as interest rates have risen
significantly, because CIOs have gained greater conviction in the
diversification and return benefits that these assets can provide
in both low and high interest rate environments. The report also
notes that CIOs are increasingly focused on leveraging both liquid
and illiquid allocations to build more resilient “all-weather”
portfolios to take advantage of dislocation and access new
markets.
“The clear message we drew from our 2024 insurance survey
participants is that there is “no going back” to more traditional
approaches to asset allocation. Having endured huge fluctuations in
central bank policies in recent years, CIOs are now more
comfortable embracing investment strategies outside of traditional
fixed income instruments that are helping to not only generate
better returns but also diversify their risk profiles in today’s
increasingly complex world,” said McVey.
More detailed conclusions for asset allocation include:
- Given the rise in interest rates, allocations to Investment
Grade debt have increased but have not rebounded to peak levels
seen in 2017.
- However, despite the record increase in interest rates in
recent quarters, insurers' allocations to non-traditional
investments, including Alternatives, declined only slightly to
28.9% in 2024 from 31.8% in 2021, but were still well above 20.3%
in 2017.
- Within non-traditional investments, allocations to Structured
Credit, such as CLO Debt, Asset-Based Finance, and other tradeable
structures, increased the most, from 5.9% of portfolios in 2017 to
8.3% in 2024, with U.S. insurers having the highest allocations to
the asset class.
- Private Credit allocations, which jumped to 7.7% in 2021, fell
back to their 2017 levels of around 5.3% as CIOs shifted their
portfolios to take advantage of higher yields in more liquid
products as rates increased. However, Private Credit remains
attractive to CIOs, with most choosing the asset class as their top
choice for future allocations.
- Infrastructure and Private Equity also rank high on the list
for future allocations, and CIOs are now finally seeing more
opportunity in Real Estate Equity after the recent compression in
values.
- Asset allocation priorities vary by type of insurer. On
average, Life and Annuity CIOs tend to allocate more to Structured
Credit and Real Estate Credit, while Property and Casualty CIOs
tend to hold more than the average in Private Equity, Public
Equities, and Bank Loans and High Yield.
- Similarly, allocation preferences vary by region, with
Europe-based CIOs allocating more to Private Credit and
Infrastructure, while Asia-based CIOs are leaning more heavily into
Real Estate Credit.
Links to access this report in full as well as an archive of
Henry McVey's previous publications follow:
- To read the latest Insights, click here.
- To access the 2021 Insurance survey, click here.
- For an archive of previous publications please visit
www.KKRInsights.com.
About Henry McVey
Henry H. McVey joined KKR in 2011 and is Head of the Global
Macro, Balance Sheet and Risk team. Mr. McVey also serves as Chief
Investment Officer for the Firm’s Balance Sheet, oversees Firmwide
Market Risk at KKR, and co-heads KKR’s Strategic Partnership
Initiative. As part of these roles, he sits on the Firm’s Global
Operating Committee and the Risk & Operations Committee. Prior
to joining KKR, Mr. McVey was a Managing Director, Lead Portfolio
Manager and Head of Global Macro and Asset Allocation at Morgan
Stanley Investment Management (MSIM). Learn more about Mr. McVey
here.
About KKR
KKR is a leading global investment firm that offers alternative
asset management as well as capital markets and insurance
solutions. KKR aims to generate attractive investment returns by
following a patient and disciplined investment approach, employing
world-class people, and supporting growth in its portfolio
companies and communities. KKR sponsors investment funds that
invest in private equity, credit and real assets and has strategic
partners that manage hedge funds. KKR’s insurance subsidiaries
offer retirement, life and reinsurance products under the
management of Global Atlantic Financial Group. References to KKR’s
investments may include the activities of its sponsored funds and
insurance subsidiaries. For additional information about KKR &
Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com.
For additional information about Global Atlantic Financial Group,
please visit Global Atlantic Financial Group’s website at
www.globalatlantic.com.
The views expressed in the report and summarized herein are the
personal views of Henry McVey of KKR and do not necessarily reflect
the views of KKR or the strategies and products that KKR manages or
offers. Nothing contained herein constitutes investment, legal, tax
or other advice nor is it to be relied on in making an investment
decision or any other decision. This release is prepared solely for
information purposes and should not be viewed as a current, past or
future recommendation or a solicitation of an offer to buy or sell
any securities or to adopt any investment strategy. This release
contains forward-looking statements, which are based on beliefs,
assumptions and expectations that may change as a result of many
possible events or factors. If a change occurs, actual results may
vary materially from those expressed in the forward-looking
statements. All forward-looking statements speak only as of the
date such statements are made, and neither KKR nor Mr. McVey
assumes any duty to update such statements except as required by
law.
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version on businesswire.com: https://www.businesswire.com/news/home/20240430450908/en/
Media: Julia Kosygina 212-750-8300 media@kkr.com
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