Event-driven holdings were cut 41 percent to $700 million, while investments in long-short declined 25 percent to $2.24 billion in the first half of the year, among the hedge fund assets measured at fair value as of June 30, the New York-based company said late Tuesday in a quarterly filing.
Chief Executive Officer Peter Hancock said early this year that he’d slash the insurer’s hedge fund investments by about half, then submitted redemption notices for about $4.1 billion of those holdings through March 31. Hedge funds were unprofitable in the latter half of 2015 and the first three months of this year for the insurer, before rebounding in the second quarter. The shift to less-volatile assets is helping AIG free up capital as part of Hancock’s plan to return $25 billion to shareholders over two years.
“While a portfolio of alternative investments remains a fundamental component of the investment strategy of the life insurance companies, we intend to reduce the overall size of the hedge fund portfolio, in light of changing market conditions and perceived market opportunities,” AIG said in the filing.
Hedge fund firms have been roiled by global uncertainties and high-profile investors who lamented high fees amid performance that trailed stock market returns. Event-driven and macro funds drove industry outflows in the first half of this year.
AIG’s holdings on macro funds, which can bet on broad economic or market shifts, climbed 3.2 percent to $573 million from Dec. 31 through June 30. Event-driven funds focus on catalysts at corporations such as takeovers, spinoffs and bankruptcies. Long-short funds bet on increases or declines in securities.
AIG said late Tuesday that second-quarter profit climbed 6.3 percent from a year earlier to $1.91 billion, beating analysts’ estimates. The gain from hedge funds narrowed by 36 percent to $174 million, according to a supplemental document on the firm’s website. AIG is shifting funds toward highly rated bonds and commercial property loans, the company said in February.
Hancock’s company jumped 6.6 percent to $57.71 at 9:45 a.m. Wednesday in New York, the biggest gain in the S&P 500 Index. It’s also the largest intraday climb for AIG since February.
The assets held at fair value are a subset of AIG’s hedge fund investments. The entire hedge fund portfolio was more than $8 billion as of June 30, the filing shows. Some holdings are reported on a one-month lag.