This insight interview was conducted in advance of the Insurance Asset Management Summit to be held on the 15th November in London, with Felix Schlumpf, Head of Strategic Asset Allocation-Investment Management for Zurich Insurance Company.
What percentage of your asset base is held in short duration fixed income and do you see the pressure increasing or decreasing to hold such short-term investments?
We hold about 8% of assets in short duration fixed income up to one year maturity. We do not see a pressure to increase or decrease these holdings as we are mainly liability driven in our investment strategy.
Given the plethora of new funds being launched to address new appetite, from private markets, to insurance linked securities, to global bond and equity funds, what are the most significant challenges to achieving true diversification within a strategic investment strategy?
Diversification is driven by the correlation of the different asset classes. Just increasing the number of asset classes may therefore not lead to better diversification. It is important to tap different, uncorrelated and rewarded risk factors while designing an investment strategy.
As a way to reduce costs, should insurers be exploring more direct and co-investment opportunities or is the additional cost of developing the internal skillset outweighed by allocating to external managers?
The trade-off between internal skillset and external managers is driven by the size (assets under management) and the ability to attract talent. An internal team should be of a minimal size and therefore be supported by a minimal asset size to be able to reduce cost.
What will be the main points you will refer to in your comments at the Summit that will make for interesting learning by attendees?
The first question to consider would be an asset liability management question: do I really need to hold so much short-term cash? I will also mention some asset classes which make an attractive short-term investment. Diversification is the only free lunch in finance, I will mention how to increase diversification by using a risk factor approach for the investment strategy.
Registration to the Insurance Asset Management Summit on the 15th November at 200 Aldersgate, London, is open and available to register by clicking here. Only representatives of insurers and regulatory bodies are able to register for free. Should you not be an insurer but wish to be part of this event, then get in touch with Noel Hillmann at noelhillmann@clearpathanalysis.com or call +44 (0) 207 688 8511.
