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The Private Equity Activity of Insurance Companies Following the Financial Crisis.

by Joe Childs

  • 15 Sep 2009
  • PE

Following on from our recent research report concerning private equity investors’ views of the asset class in the current climate, Preqin has been talking to insurance companies to see how the financial crisis and economic downturn of the past 12 months have affected this type of institutional investor’s plans for, and expectations of, the private equity asset class.

Given the extent and severity of the financial turmoil, and the need to maintain a reasonable level of liquidity and exposure to risk, it is perhaps unsurprising that 32% of the insurance companies we spoke to informed us that they were making fewer private equity commitments than in previous years as a direct result of the financial crisis. More than a quarter of investors said that they were employing a more stringent due diligence process following the crisis, while a number of respondents indicated that they had both reduced the rate of private equity commitments and implemented a stricter due diligence process.

In general, however, insurance companies appear to remain committed to the private equity asset class. While 13% of those that we spoke to stated that they had decided not to make any new commitments to private equity for at least 12 months, nearly a quarter told us that their private equity plans had not changed as a direct result of the crisis. 16% of respondents said that the turmoil in financial markets and subsequent climate had led them to focus more on specific areas of the private equity market, such as small-mid market buyout, distressed debt and turnaround funds, as well as secondaries opportunities.

The vast majority of respondents also indicated that they expected their exposure to private equity to stay the same or increase in both the short- and long-term. Insurance companies have traditionally allocated a relatively small proportion of assets to private equity but, should expectations of higher target allocations be fulfilled, this investor type is likely to become more prominent in the private equity asset class.

More details of our research into the private equity investments of insurance companies can be found in this month’s edition of Private Equity Spotlight, in which our investor article presents the preliminary results of a survey that is due to be published as a research report in coming weeks. For more details on the research report or for more information on receiving Private Equity Spotlight please click here.

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