(Bloomberg) — The man tasked with shepherding Aflac Inc.’s $110 billion portfolio is ready to make a wager on private equity to generate more income for the insurer.
The firm plans to bet on alternatives including private equity later this year, according to Chief Investment Officer Eric Kirsch. That follows a move last month to invest in real estate undergoing change such as renovations or upgrades, and aligns with Kirsch’s goal to have at least 2.5% of the insurer’s cash invested in growth assets, such as public equities, private equity and real estate.
“We are going to initiate growth assets, alternatives, second part of this year, but focused on private equity and real estate, not hedge funds,” Kirsch said Monday in an interview at Bloomberg News headquarters in New York. “We also initiated a transitional real estate strategy in April,” with an allocation of $500 million.
Other insurers including MetLife Inc. and American International Group Inc. have long bet on private equity even as they scaled back hedge fund investments. Aflac Chief Financial Officer Fred Crawford said the company doesn’t need to be a leader in pursuing riskier investments, and prefers to stick with bets that have traditionally panned out well for insurers. While Kirsch considered a hedge fund bet, he said the timing didn’t make sense.
“We’ll continue to look at hedge funds,” he said. “Three years from now, we’ll reassess. We’ll look at where the market is, because I think it’s going through a transformation.”
Kirsch has been diversifying Aflac’s portfolio since joining from Goldman Sachs Group Inc. in 2011. Aflac bet on infrastructure debt last year, and Kirsch said the company was looking in the U.S. and Europe, as well as Asia to a lesser extent.
U.S. President Donald Trump has said he would boost federal spending on infrastructure, and Kirsch said he was hopeful that might help the asset class.
“That one’s growing a little more slowly actually for us right now. We have a lot of interest in it,” Kirsch said. “There’s a lot of money running into infrastructure and there aren’t as many deals as you may think, at the least ones that we might be interested in.” Over time, “we would expect that to grow,” he said.
Kirsch has expanded wagers on commercial real estate. Aflac’s U.S. business had $109 million in commercial mortgages at the end of March and $761 million at its Japan operation, one of its biggest markets. Now, Kirsch said he’s putting the brakes on those bets because of valuations in the market.
“What we’ve got on the books is well underwritten but we haven’t allocated a lot of new capital because it’s gotten so tight, the spreads,” he said. “When the markets change, and they do, we can turn that on again. But for now we’ve stopped allocating capital, very little, into it.”
Other lending has proven attractive to the insurer. Aflac announced an agreement in March to fund a $500 million portfolio in loans to middle-market borrowers with NXT Capital, and agreed to invest $50 million to take a minority stake in the company.
“Those floating assets are very nice,” Crawford said Monday in an interview on Bloomberg Television. “They yield well. They’re in the higher end of below-investment grade and they work well for our liability structure and our hedging activity in Japan.”
— Read Aflac Triples Japan Equity Wagers to Counter Low Interest Rates on ThinkAdvisor.