AIA eyes more private debt investments
The insurance group AIA is finding private debt investments increasingly purposeful for its portfolio preferences, delegates heard at AsianInvestor’s Investment Strategy Summit in Singapore on May 7.
“We are looking at private credit opportunities to generate spread in the LDI (liability-driven investment) portfolio. And within that would be largely more senior secured lending, and a little bit of mezzanine as well,” Trevor Persaud, group head of investment strategy and solutions at AIA, said on stage.
AIA is currently exposed to special situations private debt that focuses on companies whose value may be impacted by a certain event, including company spin-offs, mergers & acquisitions, or tender offers. The insurer has favoured this subcategory to get high-enough returns and an alternative to more liquid risk assets, Persaud explained.
Hong Kong-based AIA is a major insurer in Asia, with $268.5 billion in total investments as of the end of 2023. It has a presence in 18 markets across Asia Pacific (APAC).
PERFECT TIMING
Private credit is also attractive for family offices that follow an absolute return strategy, as the rising base rates have made private debt an attractive asset class, according to Sean Low, chief executive officer and chief investment officer at Golden Vision Capital in Singapore.
Private credit is also attractive for family offices that follow an absolute return strategy as the rising base rates made private debt attractive asset class, according to Sean Low chief executive officer and chief investment officer at Golden Vision Capital in Singapore.
“I've been investing in private debt since 2004, and this is arguably the best time to invest in private debt, because you get a good risk-adjusted return. We are seeing returns of more than 10%, which has not been possible in the 10 years before 2022,” he said on stage.
Low, a former private equity manager at GIC, manages Golden Vision Capital’s global fund of funds and co-invest program and makes direct private equity investments in Southeast Asia.
The Singapore entity operates as part of the Golden Vision Capital group of private equity funds, which is anchored by an Asian single-family office.
“Traditionally, everybody has a fixed income allocation. But in this environment, it is good to think about the risks that arise and look for inflation protection. If you want to switch from fixed income to private debt, it is a wise time to do that,” Low said.
PE PESSIMISM
Although AIA has previously had some alternatives exposure, the insurance group has been investing significantly into private assets between private equity, real estate, and private credit for the last three years — all in the context of risk-seeking assets within the portfolio mix, Persaud explained.
Private debt has been the relatively smallest part among the three categories, but since that will now change within the LDI part of the portfolio, private equity has started to look less appealing for AIA.
“I currently favour private debt over private equity for new allocations. We do private credit and real estate largely because of the drawdown IRR [internal rate of return] realisation, from an investment perspective. And private credit and real estate draw down quicker than private equity,” Persaud said.
When he looks at liquidity risk assets with returns of over 10%, Persaud finds that it is currently possible to build a portfolio in real estate and private credit with much better downside protection and less volatility than in some of the private equity strategies.
Low pointed out that private equity is often done through funds where both investment and return can be timed over a period of up to 10 years, making drawdowns, or capital calls, less time-sensitive. That flexibility should be considered in times like this, when fundraising to private equity has been slowing due to investor concerns.
“The funds’ flexibility really mitigates the risk of interest rates affecting private equity returns. Private equity has a long history in the US especially, with easily 30 years of return by vintage. That historical data shows that private equity can do well in both high and low interest rate environments and is a proven asset class,” Low said.
This story's headline has been changed.
The third paragraph under the last subsection in this story has been revised to more accurately reflect the speaker’s views.