Away from the temporary mark-to-market impact, the benefits of illiquid assets were affirmed in the H1 downturn, according to Lisa Longino, managing director and head of portfolio strategy at the chief investment office at Prudential Financial.
"For example, in private placement credit and mortgages, covenants and security interest allows transparency of the borrower and direct access to re-negotiate any terms and modifications," Longino said. "The alternative asset class saw a lot of volatility but the impact on insurers varied by their mix and the lag in reporting."
Longino who spoke to Insurance Asset Risk ahead of the magazine's annual Americas event where she will be a speaker, said that although both liquid and illiquid assets have been impacted by the pandemic and subsequent economic lockdown, both have rebounded given the significant government stimulus and central bank programs instigated in the wake of COVID-19.
She believes that while most insurance companies have some kind of liquidity stress paradigm where they constantly assess their liquidity needs in varying scenarios, and the liquidity needs will vary by insurance company given their product mix, insurers' appetite for illiquid assets is not going away.
"Given the volatility in the market, sustained low yields and the ability to protect the downside, insurer's appetite for illiquid assets will continue and most likely grow," she said. "There could [also] be a more heightened focus on ESG-related investments within illiquid assets."
Longino will speak at Insurance Asset Risk Americas as part of a panel on the opportunities in illiquids and alternatives. Also on the panel will be Jim Clayton, director at Brookfield Centre in Real Estate & Infrastructure of York University, Bryan Evans, senior investment professional for alternative investments at Nationwide Insurance and Charlie Rose, managing director at Invesco Real Estate. This year's event will be held as a virtual conference due to COVID-19. The conference will take place on 22 and 23 of September, more details can be found here.
