Insurers Expect Private Credit to Outperform Other Assets
Insurers expect private credit to be one of the asset classes with the highest returns over the next 12 months, outperforming private equity for the first time, according to the 13th annual Goldman Sachs Asset Management insurance investment survey.
The survey of 359 CIOs and CFOs, representing more than $13 trillion in global balance sheet assets, found that respondents are ready to put last year behind them.
A decline in bank lending, rising geopolitical tensions, and upcoming elections created huge uncertainty in global markets, according to Matt Armas, GSAM global cohead of insurance. However, by the fall, the Federal Reserve had paused its interest rate hikes and began to discuss rate cuts.
According to the survey, 35% of insurers intend to raise credit risk in their portfolios in the next 12 months, despite 59% of insurers being concerned that the credit cycle is at a late stage.
Overall, insurers are seeking private assets to diversify their exposure; 53% of respondents ranked private credit as one of the top five asset classes with the highest expected return. Investment-grade private debt allocations also remain solid, with 33% of investors planning to expand their exposure to this asset class.
“I think one of the most surprising things about this survey was for the first time we’ve been doing the survey, we’re seeing credit or fixed income assets at the top of the asset class return expectations,” said Armas.
Following an aggressive rate hike cycle, along with a general belief that rates have peaked, respondents said that they intend to extend duration in 2024 to the greatest level in the asset management survey’s history.
Meanwhile, projections for a recession differed greatly by location, with half of insurers still anticipating the U.S. to enter a recession over the next two to three years. However, a bigger proportion of insurers from other countries believe the U.S. economy would not suffer a recession in the next five years, compared to only 7% of respondents from the Americas.
A decreased percentage of insurers across all regions see inflation as a budding risk: 63% of insurers expect the period of heightened inflation risk to last a while, down from 76% in 2023.