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The long-term nature of private equity investments, typically held for between eight and 15 years, their function as a diversifier, and their enhanced yield compared to listed equities, makes them a good match for insurers' liabilities.
A recent survey by asset management giant Blackrock revealed that 54 per cent out of 206 firms surveyed are either moderately or very likely to increase investment in private equity, with 70 per cent confident of their ability to assess the risks inherent in this asset class.
Brokers argue that interest in private equity has risen in response to the lack of return-generating opportunities present in traditional markets.
Kishore Kansal, head of private equity risk solutions at inter-dealer broker Tullett Prebon in London, says: "There's certainly recognition that insurance investors need an allocation to private equity, as well as other alternatives, in order to meet liabilities". "But what we are also seeing is where there are certain firms more subject to regulatory pressures, those groups are actually deciding to go out and sell their interests", he adds. This seems especially true for very large groups, including those recently labelled global systemically important insurers by the International Association of Insurance Supervisors.
Some insurers are also looking to refine their approach to private equity to boost their chances of increased yield, instead of simply allocating a set amount to the asset class spread across a whole range of funds.
It is not only investment alpha that recommends private equity to insurers. They are also attracted by the illiquid nature of the assets, which help to stabilise balance sheet earnings.
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