As we approach the ten-year mark since the collapse of Lehman Brothers, one has to look back in wonderment and ponder how different the pre and post-Lehman landscapes are from one another.
Though it was an American investment bank, the ripple effect that Lehman's collapse had on the global market is substantial even today. The more heavily-regulated financial institutions have certainly felt a great level of frustration. These have most notably been banks, which were hit with a plethora of added regulation post-2008.
Insurers have been the less-publicised institutions that also felt massive repercussions, following mid-September a decade ago. Their heavily regulated investment portfolios are primarily dependent on fixed income assets, which in a lengthy zero to negative interest rate world, have delivered paltry returns. And unlike many other institutional investors, their alternatives are limited, with liquidity and capital requirements topping their list of priorities.
However, this added regulation has a bright side. The lending constraints placed on banks in the aftermath of Lehman was the catalyst for the flourishing private debt market that insurers have been very active in. Small and medium-sized business - many of them investment grade - have depended on insurers, to a greater degree, to fund their vitality, thereby supporting economic growth over the last decade.
Over the last few years, a number of new asset managers have entered the private debt market, offering insurers a greater array of investment options. Private debt has become a common term in the insurance asset management community and is making a greater presence in insurance portfolios. Granted, regulation and the illiquid nature of much of the private debt market will keep the asset class from becoming a majority holding for insurers, but it has provided a sense of relief in a world where yields in AAA-rated securities have been elusive.
As we enter the final quarter of 2018, there are many questions that hang over investors' minds, including the effects of Brexit, trade wars, and emerging market woes. Private debt has, surprisingly, remained mostly unaffected. In fact, interest by insurers has increased. As long as the memories of Lehman linger in our minds, banking and insurer regulation is not likely going away anytime soon. It's probably safe to say that neither is private debt in insurers' portfolios.
Forward looking analysis of the effects of Lehman Brothers crash from the perspective of investment officers of insurers is available in our upcoming Insurance Asset Management, North America report released on the 15th October; analysis of changes to portfolios will be discussed at the third annual Insurance Asset Management Summit on the 15th November in London, followed by release of the sixth annual Insurance Asset Management, Europe report on the 21st January 2019. Download each Report and/or register (if an insurer) to attend the Summit.
For fund operation professionals, gain insight into ongoing changes in portfolio and risk reporting taking hold in the investment operations industry at the second annual Fund Management Operations Summit on the 20th November, followed by the fifth annual Fund Technology, Data & Operations, Europe report on the 21st January.
For free access to all our industry opinion Reports written by representatives of insurers, pension plans, fund management operation professionals, plus treasurers and finance directors, visit our Reports page to download individual publications and set up a subscription to be automatically notified about future, buy-side led reports and events.
