KKR’s Henry McVey Says Insurance CIOs Plan to Increase Allocations to Non-Traditional Assets

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KKR released a new report by Henry McVey, highlighting insurance CIOs' increased allocations to non-traditional assets due to interest rate volatility. The report emphasizes the shift towards diversified portfolios to manage risk and generate better returns in today's complex environment.

Positive

• Increased allocations to non-traditional assets showcase insurance companies' adaptability to volatile interest rate environments.

• CIOs are leveraging both liquid and illiquid investments to build resilient portfolios and access new markets.

• Private Credit, Infrastructure, and Private Equity are top choices for future allocations among CIOs.

Negative

• Allocations to Investment Grade debt have not rebounded to peak levels seen in 2017 despite the rise in interest rates.

• Private Credit allocations fell back to 2017 levels as CIOs shifted towards more liquid products with higher yields.

Proprietary Survey Highlights Why There is “No Turning Back” to Traditional Asset Allocation After the Recent Surge in Interest Rate Volatility

NEW YORK--(BUSINESS WIRE)-- KKR, a leading global investment firm, today released “No Turning Back,” a new Insights piece by Henry McVey, CIO of KKR’s Balance Sheet and Head of Global Macro and Asset Allocation (GMAA).

Based on a proprietary survey of nearly 50 Chief Investment Officers (CIOs) who collectively oversee over more than $8 trillion dollars in assets, the report examines how leading insurance companies are navigating and evolving their asset allocation priorities for today’s more volatile interest rate environment. Specifically, McVey notes that allocations to non-traditional investments have remained high, even as interest rates have risen significantly, because CIOs have gained greater conviction in the diversification and return benefits that these assets can provide in both low and high interest rate environments. The report also notes that CIOs are increasingly focused on leveraging both liquid and illiquid allocations to build more resilient “all-weather” portfolios to take advantage of dislocation and access new markets.

“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,” said McVey.

More detailed conclusions for asset allocation include:

• Given the rise in interest rates, allocations to Investment Grade debt have increased but have not rebounded to peak levels seen in 2017.
• However, despite the record increase in interest rates in recent quarters, insurers' allocations to non-traditional investments, including Alternatives, declined only slightly to 28.9% in 2024 from 31.8% in 2021, but were still well above 20.3% in 2017.
• Within non-traditional investments, allocations to Structured Credit, such as CLO Debt, Asset-Based Finance, and other tradeable structures, increased the most, from 5.9% of portfolios in 2017 to 8.3% in 2024, with U.S. insurers having the highest allocations to the asset class.
• Private Credit allocations, which jumped 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. However, Private Credit remains attractive to CIOs, with most choosing the asset class as their top choice for future allocations.
• Infrastructure and Private Equity also rank high on the list for future allocations, and CIOs are now finally seeing more opportunity in Real Estate Equity after the recent compression in values.
• Asset allocation priorities vary by type of insurer. On average, Life and Annuity CIOs tend to allocate more to Structured Credit and Real Estate Credit, while Property and Casualty CIOs tend to hold more than the average in Private Equity, Public Equities, and Bank Loans and High Yield.
• Similarly, allocation preferences vary by region, with Europe-based CIOs allocating more to Private Credit and Infrastructure, while Asia-based CIOs are leaning more heavily into Real Estate Credit.

Links to access this report in full as well as an archive of Henry McVey's previous publications follow:

• To read the latest Insights, click here.
• To access the 2021 Insurance survey, click here.
• For an archive of previous publications please visit www.KKRInsights.com.

About Henry McVey

Henry H. McVey joined KKR in 2011 and is Head of the Global Macro, Balance Sheet and Risk team. Mr. McVey also serves as Chief Investment Officer for the Firm’s Balance Sheet, oversees Firmwide Market Risk at KKR, and co-heads KKR’s Strategic Partnership Initiative. As part of these roles, he sits on the Firm’s Global Operating Committee and the Risk & Operations Committee. Prior to joining KKR, Mr. McVey was a Managing Director, Lead Portfolio Manager and Head of Global Macro and Asset Allocation at Morgan Stanley Investment Management (MSIM). Learn more about Mr. McVey here.

About KKR

KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR’s investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com. For additional information about Global Atlantic Financial Group, please visit Global Atlantic Financial Group’s website at www.globalatlantic.com.

The views expressed in the report and summarized herein are the personal views of Henry McVey of KKR and do not necessarily reflect the views of KKR or the strategies and products that KKR manages or offers. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment decision or any other decision. This release is prepared solely for information purposes and should not be viewed as a current, past or future recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. This release contains forward-looking statements, which are based on beliefs, assumptions and expectations that may change as a result of many possible events or factors. If a change occurs, actual results may vary materially from those expressed in the forward-looking statements. All forward-looking statements speak only as of the date such statements are made, and neither KKR nor Mr. McVey assumes any duty to update such statements except as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240430450908/en/

Media:

Julia Kosygina

212-750-8300

media@kkr.com

Source: KKR

FAQ

Why are insurance CIOs increasing allocations to non-traditional assets?

Insurance CIOs are increasing allocations to non-traditional assets due to the volatile interest rate environment, seeking better returns and risk diversification.

What are the top choices for future allocations among CIOs?

Private Credit, Infrastructure, and Private Equity are top choices for future allocations among insurance CIOs.

How have allocations to Investment Grade debt changed with rising interest rates?

Allocations to Investment Grade debt have not rebounded to peak levels seen in 2017 despite the rise in interest rates.

Why did Private Credit allocations fall back to 2017 levels?

Private Credit allocations fell back to 2017 levels as CIOs shifted towards more liquid products with higher yields.

What asset classes saw the most significant increase in allocations?

Structured Credit, including CLO Debt and Asset-Based Finance, saw the most significant increase in allocations among insurance CIOs.

How are asset allocation priorities determined by type of insurer?

Life and Annuity CIOs tend to allocate more to Structured Credit and Real Estate Credit, while Property and Casualty CIOs hold more in Private Equity, Public Equities, and Bank Loans and High Yield.

What are the regional differences in asset allocation preferences among CIOs?

Europe-based CIOs allocate more to Private Credit and Infrastructure, while Asia-based CIOs lean more heavily into Real Estate Credit.