Building diversified and flexible private debt mandates for insurers.

Private debt offers a broad and diverse investment universe that is often well-suited to an insurer’s balance sheet. We believe that a well-constructed, diversified private debt portfolio, managed with specific risk constraints – including duration, solvency capital requirements, internal rating – could and should form part of most insurers’ asset allocation. This could help insurers balance a range of requirements, but primarily help meet a higher investment return objective over the long term – without having to increase portfolio risk.

This article was produced by M&G Investments as part of their valued Industry Partnership to Insurance Investor. 

Insurance Investorposted on Tuesday, September 28, 2021

Private debt markets continue to evolve and mature, so investors need to ensure that they are making the most of their allocations over time. We would suggest that previous frameworks and structures employed by insurers, which tend to focus on certain sub-types of private debt in a siloed approach, can create barriers to effective investment going forward and inadvertently narrow the opportunity set – thereby reducing the potential for diversification and increasing capital deployment time.

Alternatively, taking a flexible approach to investing in the private debt market should help insurance investors harness the full potential of the market, both now and as it evolves. Established private debt managers that have the ability to identify and assess the best available opportunities from across the full private debt spectrum, can help to ensure portfolios are optimised based on an insurer’s individual preferences and risk appetite.