Joris Laenen: My official title is Chief Investment and Life Officer, which is atypical in an insurance company because life and investments are mostly separated.
I joined Ethias in 2019; I became a member of the board in 2021. I have spent most of my career working in banks (Financial Markets) and asset management.
Since my arrival, I've been modernising ALM, asset management, making it more about investing in real assets in Belgium itself, because we want to reinvest the premiums we receive from Belgian customers in the local Belgian economy.
We manage almost €19 to €20 billion, so it's not possible to invest the whole amount in Belgium because that would be too much of a concentration risk. We have decided that up to 30% would be possible.
"We have a classic insurance portfolio with almost 70% in fixed income."
My role is to source sufficient transactions to see to what extent we can match them with the liabilities that we have from the balance sheet. Besides that, I'm focused on macroeconomic issues around the portfolio, which are the macroeconomic risks that we see; how can we hedge them? How can we anticipate portfolio management?
We have a classic insurance portfolio with almost 70% in fixed income, of which 40/45% is in government bonds, 25%, in corporate debt with the shorter duration, then we have 5% to 6% in real estate, 5% to 6% in mortgages, and 10% in private equity and private debt, which is the part that I'm focusing on the most.
Joris: When you look at the steps that we have in the investment logic that we follow, we ask, what, in terms of tactical asset allocation, is an interesting investment? That depends on interest rate curves, on pricing, on liquidity, and on the opportunities that we have.
We try to detect investment opportunities. We match that with the existing exposure in the portfolio and the diversification that we want to realise.
The second phase is to try to match that with the asset liability management constraint. Does the duration match the way we want to match the duration gap between assets and liabilities, and with the liability portfolio that we have to manage?
"Impact is something in which we don't only look at the pure financial merits of the investment, but at what qualitative elements we can generate through it."
The third phase is ESG: to what extent is the investment compliant with the larger ESG ambitions that we have? Reporting has become important in this area. Are the company or the fund manager, who are behind the initiative, able to provide us with the reporting criteria that we need to have automated ESG reporting?
There is also ‘impact’, the issue that pops up - ESG and impact are close together in our investment logic - but impact is something in which we don't only look at the pure financial merits of the investment, but we also look at what other qualitative elements we can generate through it.
Using these ideas, we see to what extent we can offer, especially in private debt, interest reductions in terms of the KPIs of the company that we invest in. For example, if they're trying to work around energy, and we can convince them to install a certain number of poles for electric vehicles, then we can give a reduction in terms of the interest rate.
Another element is that we have been investing in logistics. This area is a possibility to create employment for people who have more of a barrier to the employment market, who don't have adequate education, or might not have the exposure to working culture and practices.
They might not have been trained to remain concentrated for longer hours or face other barriers, so if we can stimulate some of the parties in logistics to create additional employment for those types of people, then we can calculate ways to integrate interest rate reductions in the corporate debt that we give.
Those are types of elements that we try to integrate within the portfolio management during the negotiations.
It’s also important for us to get a good view on possible exits, because in real assets, we do need a minimum of liquidity. Because insurance companies have a lot of strict liquidity measures, especially from the rating agencies, technically, we need to calculate on each day the liquidity of certain investments.
That's why, if we invest in something and we do due diligence on the transaction, then the possible exit scenarios are a main element of that.
Joris: Some overlooked investments are, for me, affordable and social housing, and healthcare real estate.
As an insurance company, we stand for ethical insurance (Ethias is Assurance Ethique). We invest towards health, social care, and affordable housing.
We issued social bonds at the beginning of this year, for which we also tried to find investments that can be financed through that social bond to match the criteria.
We have the advantage that we are the third largest insurance company in Belgium, with an A+ rating from Fitch, so in terms of the sourcing of transactions, we have sufficient people who contact us with possible projects.
"The matching is the hardest thing that we do. We do that on our own in terms of structuring ourselves with those equity-lite transactions."
The question is always to structure their financing needs with our financing investment needs. That's the hardest work, and most of what we need to do is to come up with a solution that combines their revenue model, their business model, and our investment logic.
The matching is the hardest thing that we do. We do that on our own in terms of structuring ourselves with those equity-lite transactions.
We also work together with the four sovereign investment funds in Belgium; we have a federal investment fund and the three regional investment funds for the Walloon region, for Flanders, and for the Brussels region, which are also our shareholders.
We ask, “How can we get organised? How can we profit from possible support and subsidies from the region or from the federal state? How can we fiscally make the transaction even more attractive?” and we see what they are looking for. To what extent can they integrate those investments within Private Public Partnerships (PPP), and to what extent can we invest in the equity part or in the debt part?
That's something we try to structure on our own or with the partners to make the projects that we are introduced to investable for our balance sheet.
Joris: One of the main issues that we have in Impact Finance Belgium, and in which we try to be a partner in the discussions, is around some of the labels, i.e., the ESG labels, and how to define “impact”. For some participants, ESG is also ‘impact’ because there is an economic, societal governance impact.
There is a lot of impact with ESG on climate, on energy consumption of buildings, and, for us, yes, impact is part of ESG, but it's not the same. Impact is, for us, where there is an element that intervenes that has the investment at arm’s length, but it's not at the same market conditions as other investments. It's not a pure financial investment. We want to stimulate a just transition with our impact investments.
You need to get integrated KPIs, to discuss how to calculate them, and how to define them. These are one of the main issues that I see with the back office; I bring the transaction that we have negotiated, and get asked, “How am I going to put that in our asset management system? Because I don't have the boxes that you have identified in my system. How is the company going to report on that? Who is going to follow that? Who is going to do the due diligence to ensure that the information is correct? We do not always have the internal capacity?”.
These are important questions, and the discussion we’re having is about creating a more mature market in which we can standardise KPIs around impact, and how we can create benchmarks to calculate and measure them to be sure we’re comparing the right things.
"One of the dreams that we have, is how impact investment can have lower capital weightings than normal investments."
This is important because we've seen in communications on projects that we have discussed impact investments in one way, and then banks, investment companies, insurance companies, and fund managers do the same communication, sometimes on the same project, in which we are working together, and they communicate it in a completely different way. So, we need to figure out how to turn this process into a more objective way of working and how we can make that market more mature and more transparent.
Because the credibility of the market is important, it needs to be more than just the marketing effort.
Joris: In terms of the portfolio, it would be a success if we could have an asset class of impact on its own, so that within the asset allocation, impact investment is not just a marketing term, but it has become an asset class in which a part of the portfolio is orientated towards investments in which the return is not purely financial.
One of the dreams that we still have and we try to discuss with the regulators, is how impact investment can have lower capital weightings than normal investments.
This is so you can compensate for it and be sure that the part of the portfolio that we want to orient towards an impact investment area can still grow, and it's not something that is determined based on the capital situation of the company, but is based on the conviction that we have in terms of investments.
Secondly, a more mature market with a clear definition of how you need to calculate impact. How do you need to understand 'impact' and how impact investment can be compared between different companies?
