Following the fallout from Autumn 2022's failed mini-budget, institutional investors are showing renewed interest in illiquid assets. The appeal of these assets stems from favorable pricing, steady cash flows, and robust market demand. Additionally, pension funds exiting the illiquid market have created opportunities for insurers, particularly those in the life insurance sector. Insurers capable of deploying capital to the now more accessible illiquid market are expected to benefit. This shift has also prompted changes in the hiring patterns of life insurers, with many opting for in-house activity and direct origination, leading to expansions and increased hiring.

Within the realm of illiquid assets, there is a particular appetite for investments in renewable energy and natural capital. These sectors offer desirable attributes such as solid, investment-grade, long-term options, making them attractive to life insurers. The energy transition and the need for renewable energy and nature investments provide additional possibilities for growth and innovative vehicles. Insurers seeking sustainable and long-term fixed income cash flows find these areas well-aligned with their investment objectives.

While opportunities for growth in the illiquid space exist, a cautious approach is necessary. Investors should carefully assess their risk profiles, liquidity needs, and investment timelines before venturing into illiquid assets. Barclays' analysis recommends considering the overall exposure to illiquid assets, with a general guideline of not exceeding 15% in the absence of cash reserves, to manage liquidity risk and maintain a balanced portfolio. However, individual circumstances may vary, and thorough research and professional advice are essential to align portfolio allocations with specific goals and risk tolerance.

As the market navigates the lingering impact of the LDI crisis, the illiquid asset trend is expected to gain momentum in the second half of 2023, presenting potential opportunities for insurers. Nevertheless, significant shifts in strategies from non-life investment teams are not anticipated in the near future. A measured and prudent approach, coupled with the exploration of renewable energy and natural capital investments, is essential to effectively navigate the illiquid market and capitalize on the prospects it offers.