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US-Based Insurance Companies’ Investment Preferences – April 2015

by Brian Orlay

  • 23 Apr 2015
  • PE

With a growing need for portfolio diversification in today’s market and investors seeking ever higher returns from their commitments, more and more insurance companies are turning to alternatives for higher yields. Of all the alternative asset classes that Preqin covers, private equity is the most popular for insurance companies; Preqin currently tracks 370 insurance companies worldwide that invest in the asset class. US-based insurance companies account for largest proportion of this group, making up 41%. The chart below shows the number of US insurance companies that invest in each asset class, with private equity clearly emerging as the most prominent of the five. 

US-based insurance companies have an aggregate $7.5tn in assets under management, with an average of $765mn allocated to private equity. This investor type seeks opportunities in a wide range of fund types, the most prevalent being buyout vehicles; 71% of all US-based insurance companies that invest in private equity invest in buyout funds. Venture capital vehicles investing across all stages rank second, with 59% of US-based insurance companies stating a preference for funds targeting high-potential start-up companies. Mezzanine, growth and fund of funds vehicles are also targeted by notable proportions of the group (54%, 41% and 38% respectively). 

Insurance companies have further specific preferences when it comes to making new private equity investments. The majority of US-based insurance companies have indicated a preference to commit to fund managers with proven track records, with only 28% willing to invest in first-time funds and a 13% minority that will invest in spin-off vehicles. Larger proportions are willing to be first-close investors (49%) or have stated an interest in co-investment opportunities (42%). This appetite is likely to be linked to the potential benefits of investing before first close or co-investing alongside a GP, especially with regard to better fund terms and reduced management fees. 

With such a large pool of capital under their control and a healthy appetite for private equity, insurance companies are an important group for fund managers of a variety of fund types to consider when looking to source LP commitments. 

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