Insurers are likely to add to alternatives allocations, says KKR

A recent insurance survey released by global investment firm KKR has highlighted a sharp recovery in allocations to investment-grade fixed income as rates rebounded over the past three years, as well as considerable resilience for nontraditional investments such as private equity and structured credit.

However, despite higher rates, insurance company Chief Investment Officers (CIOs) are remaining focused on creating portfolios that are more “all-weather” in nature, ultimately leveraging both liquid and illiquid investments.

Almost 50 CIOs participated in KKR’s first insurance survey since 2021. The group surveyed oversees a total of more than $8 trillion in assets, half of which were based in the United States, a third were based in Europe, and the rest in Asia or elsewhere.

The more than $8 trillion in assets showed allocations to investment-grade fixed income recovering to 56.6% from 48.5% in KKR’s previous survey in 2021.

Moreover, that 56.6% level still remains well below the 60.7% allocation logged in KKR’s 2017 insurance survey.

Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA), commented: “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.”

In addition, KKR’s latest survey showed allocations to nontraditional investments decreasing to 28.9% from 31.8% in 2021, but still but remained well above 20.3% that was seen in 2017.

Notably, across non-traditional investments, allocations to Structured Credit, such as CLO Debt, Asset-Based Finance, and other tradeable structures, increased the most, climbing from 5.9% of portfolios in 2017 to 8.3% in 2024, with U.S. insurers having the highest allocations to the asset class.

An important factor to highlight is that Private Credit allocations, which climbed 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.

But, Private Credit still remains attractive to CIOs, with most choosing the asset class as their top choice for future allocations.

As well as this, both Infrastructure and Private Equity also rank high on the list for future allocations, and CIOs are now seeing more opportunity in Real Estate Equity after the recent compression in values, KKR noted.

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