Investing for Participating Products ASHK Joint Regional Seminar - - PowerPoint PPT Presentation

Investing for Participating Products

ASHK Joint Regional Seminar Back to Basics - Evolving Technical Matters

Date: 27 July 2016 Angelina Lai

PUBLIC

2

Contents

 Participating products in a nutshell  Investing for Participating products

– the different facets – today’s challenges – “new” ways

PUBLIC

3

Investment return – a key driver in the competitiveness of a participating policy

Policy Premium Shareholder Capital

Investment Return

Insurance Profit Guaranteed Return to policyholders Shareholder’s share of profit Policyholder Dividends

PUBLIC

4

Investing for Participating products – the different facets

Long Term Strategy (Strategic Asset Allocation) Medium Term Opportunities (Tactical Asset Allocation) Dynamic Asset Allocation Performance management Asset Management approach

Govt bonds Corp bonds Private debt Listed equity Private equity Hedge fund Property Other

Thematic positions Access niche / new assets Stop loss / triggers Short term structures Tilts between asset classes Tilts within asset classes In house management vs

• utsourced (internal vs external)

Active vs passive Level of control Scorecard – benchmark / alpha / vol Remuneration Changing styles

PUBLIC

5

Traditionally, the SAA had been simple…

PUBLIC

6

Challenges of investing for Participating Policies today

PUBLIC

7

Investing for Participating Policies in todays’ world

Return Risk Adjusted Return Valuation Stability Diversification Transparency Policyholders’ Reasonable Expectations Lack of liquidity? Income Stability Inflation protection

PUBLIC

8

Through the looking glass – Risk Premia

Credit

• Risk of default, MTM of credit spread (where unmatched to liability)

Equity

• Price volatility, risk of corporate default (bottom of capital structure)

Term

• Uncertainty due to having to hold asset for a period of time, mismatch to liability

Illiquidity

• Uncertainty due to not being able to sell the asset quickly

Inflation

• Risk of higher than expected inflation eroding real returns, or lower than inflation that is priced into policies

Insurance

• Risk of losses arising from unexpected extreme events

Skill

• Manager risk

PUBLIC

9

“New” drivers of investment return

Skill

Alpha as a return driver Difficulty of achieving alpha

• ver long time

horizon Difficulty of selecting skillful managers Past performance vs future performance? Expectations of alpha

Iliquidity

Less frequently traded Stable valuation by design E.g. private strategies Access to larger investment universe Non-standardized Less agile in responding to shocks

Inflation

Linked to underlying economic growth Investing for the long term Typically publically funded – difficult to gain access to investments

Insurance

Diversifying from traded market risk Concentration or diversification against own liability

Sustainability

“Ultra” long term Theoretically would reflect real economic growth “Feel good factor” Broad definition Young market for investment Difficult in gaining access to investments

PUBLIC

10

Examples of “new” asset classes being sought by Participating funds

Asset Class Real Estate Debt / Equity Infrastructure Debt / Equity Private Credit / Equity Example assets

• Core: Office / Industrial / Retail /

Residential

• Value add: distressed, land

development

• Mortgage loan book
• Power / renewables
• Energy
• Transport
• Social: hospital, school,

retirement homes

• Direct lending / specialty

finance

• Distressed / opportunistic

debt

• Private equity funds

Stable income Typically yes for core strategies Typically yes for brown- field debt Stable valuation

  

Return

  

Diversification against trad port

  

Long duration liability

  

Transparency Improving Improving Improving

PUBLIC

11

Thank you!

Questions?

PUBLIC