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Goldman's $260 Billion Fund Manager Sees Private Equity Rush

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The party’s not over for buyout firms.

After a record year for private equity fundraising, more than a third of insurers want to increase allocations to that asset class, according to a Goldman Sachs Group Inc. survey released Tuesday. Nearly half of investment chiefs and chief financial officers responding to the survey ranked private equity in the top three of asset classes they expect to deliver the highest returns in the coming 12 months.

With volatility returning to markets earlier this year, insurers in the U.S. are looking to cut back risk in investments, even as rivals in Europe and Asia expect to increase it, according to the survey. That desire to scale back risk in portfolios may be due to high equity valuations and tightening monetary policy, as well as a feeling that the U.S. is getting toward the latter part of the credit cycle, said Goldman’s Mike Siegel, who oversees almost $260 billion of funds for the industry.

(Related: Blackstone Is Building Risk Analytics as Part of Insurance Push)

“The increase in volatility has been a bit of a wake-up call and it’s made companies be a little bit more concerned,” Siegel, who oversees the insurance division at Goldman Sachs Asset Management, said at a briefing in New York. The global survey, conducted earlier this month, covered 300 insurers that together manage more than $10 trillion in assets.

While insurers may be bullish on private equity, it’s a different story for hedge funds. Just 8% of respondents said they planned to increase hedge fund investments. In 2016, insurers including American International Group Inc. and MetLife Inc. were decreasing those allocations, and Siegel said the outlook hasn’t shifted much.

“Until performance turns around in a material way and fees continue to come down, I think that the investing here is going to be balanced,” Siegel said. “If capital leaves the industry, they’ll be better able to put up good returns. We haven’t seen the capital leave the industry so there’s still large pools of capital that need to be deployed.”

The companies were cautious on cryptocurrencies. Most thought the assets couldn’t play a role in an investment portfolio, with only 3% saying they can, according to the survey. Still, some investment chiefs are monitoring cryptocurrencies for broader indicators, according to Siegel.

“Can we watch the prices of cryptocurrencies and understand something about the market, particularly maybe speculation?” Siegel said. “When these currencies really appreciate in value, is that telling us that there’s a lot of speculative fever in the markets? And then when they crash, is there a lot of fear in the markets? So they are being watched very closely.”

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