William Nicoll: We have seen more private equity money going into the insurance sector, so you have seen some smaller insurance companies being set up which means there are probably more insurance companies seeking assets than previously.
It is normal and sensible for smaller insurance companies not to try to manage all their assets internally because of the scale required to do so efficiently.
"It is normal and sensible for smaller insurance companies
not to try to manage all their assets internally."
It comes down to a cost discussion which states that if you are below a certain size or you are a niche player then it is probably not worth the significant investment in having an all-singing, all- dancing asset management group and therefore you will outsource certain elements.
Also, most of the big insurance companies know that they can't do everything perfectly. There are going to be specialisms and interesting assets that their asset manager won't, normally for historic reasons, have exactly the right set up or expertise to be able to access.
William: Private debt is where we have seen growth over the past few years which comes from the fact that Solvency II means that insurance companies have different requirements from other investors in the market.
Due to these regulations, in many cases it is challenging for an insurance company to source and invest in the perfect assets on their own.
There are capital efficient investments for insurance companies that possibly won't work for pension schemes and vice versa.
"Private debt is where we have seen growth over the past
few years because of Solvency II."
This is an opportunity for asset managers who may be able, for instance, to fund a private infrastructure deal, where 60-70 per cent of it is a perfect asset for the insurance company with the remaining 30-40 per cent working well for a pension scheme.
Therefore, you would require both client bases to make the transaction possible.
This again means that if you are an insurance company investing only your own money, you might be limited in what you can invest in because some transactions are only possible if there is demand for 100 per cent of the deal.
It can be difficult to find another party to take the remaining 30-40 per cent which doesn’t suit the requirements of your insurance portfolio.
"If you are an insurance company investing only your own money,
you might be limited in what you can invest in."
It is likely that an insurance company would use a bank in this scenario, which could be expensive, or they could come to an asset manager, such as us, who has both of the required client bases and can therefore distribute the assets to the most appropriate investors.
It is possible that, private equity ownership in the insurance sector results in shorter timeframes than the 10-20 years that would be required to build a complete asset management business.
So, the trend of outsourcing and working closely with asset managers is set to continue.
William: The difficulty for any fund manager is knowing that you may have the intellectual answer i.e. you may want to fund a £2 billion project and have existing clients seeking £1 billion of it, but not know who would be appropriate for other half of it.
Consultants - with their larger map of the investor market and their deep understanding of what their clients need - should be able to act as a matchmaker and help the markets be more efficient.
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