There are unknown risks in the market, which are creating hesitations to invest, say many leading industry investment managers.
Nenna Gilmour-Platt, Senior Investment Manager, Just Group, says that there are plenty of areas where not just the risks, but also opportunities come in to the market- you just have to be careful.
“Covid in particular did create some risk aversion
that led to spread widening.”
Gilmour-Platt spoke in Clear Path Analysis’s recently released Insurance Asset Management - Europe 2022 report, which featured several market experts from insurance groups including Aviva, New Re., LV+, and ReAssure, exploring how to navigate the post-pandemic financial markets and what investors need to know in the recovery phase, including ESG concerns.
“Covid in particular did create some risk aversion that led to spread widening and there were certain sectors that really suffered and indeed in particular in our illiquid portfolio we went through our commercial mortgages with a fine-tooth comb,” said Gilmour-Platt on risk. “That being said, although there were areas that suffered, there were opportunities such as areas in retail that we sought to take advantage of,” she added.
“There are some areas such as developed market corporate bonds
that are very high quality.”
Gilmour-Platt said that the flooding of money into the market was a key risk, though, and this has remained. “So, we are seeing a lot of deals that have loose structuring and we do remain wary,” she said. “There are some areas such as developed market corporate bonds that are very high quality that do work well under our internal model, and this is where we look to invest.”
On top of this aspect, Just Group launched their ESG framework in 2020 to add protections against potential risk and pitfalls. In October 2020, the company, was the first UK insurer to issue a Green Bond, resulting in gross issuance proceeds of £250m, and in September 2021, they became the first European insurer to issue a Sustainability RT1 bond, raising £325m.
“We have been very active in the responsible investment space over the last year, and we were the first UK insurer to issue a green bond,” she said. “We issued a sustainable bond, and we developed our own proprietary framework in order to consistently score each of the assets in our portfolio. This has really continued to frame the way that we invest.”
She says Just Group have been active in investments such as green renewable energy, green buildings, and other social investments. “The challenges are there, and they are very real," she said.
“We are having difficulty in hitting our price and spread targets and this is very much exacerbated in the green responsible investment space.”
The key issues, she explains, are data disclosure issues, integrity issues and price. Data disclosure is a critical area, and the IMF says investors lack of forward-looking, granular, and verifiable data - especially on firms’ efforts to move to sustainable business models. “Data gaps are particularly large for small and medium enterprises and for firms in emerging markets. These gaps make it difficult to assess firms’ exposure to climate risk and determine the impact of their investments on nonfinancial objectives, such as combating climate change.” IMF’s report said.
“We are having difficulty in hitting our price and spread targets and this is very much exacerbated in the green responsible investment space,” Gilmour-Platt says. “This is a real challenge but nonetheless we do continue to invest.”
