A new report by analytics and ratings firm AM Best casts light on what appears to be a growing antipathy by US insurers against hedge fund strategies.
Although European insurers have arguably never embraced hedge funds, there are some commonalities with developments in insurance investing in Europe: Hedge funds need to put clear, blue water between their performance and that offered by other investment sources, in order to justify their more punitive capital charging regime. Under most rule books, charges for hedge fund investing are not dissimilar to those incurred for private equity investments - a class which has generally offered better returns for some years but which is no longer necessarily constrained by a liquidity straitjacket. Add to that an uptick in EMD and HY based, short duration strategies adopted by insurers - categories in which the relative value argument to incur an additional charge is proven - the low-cost passives revolution and iterative increases in private debt investing by the longest duration insurers on both sides of the Atlantic and the outflow for hedgies is perhaps unsurprising. The Wall St journal takes up the story...