Are Alternative Investments Suitable Assets for Long-Term Insurance Liabilities and Pension Funds? GBV In-Depth Article
GBV magazine publishes this 14-page, in-depth article which discusses alternative investments and their suitability for life insurance in general and pension liabilities in particular. By and large, alternative investments are investments in assets other than equities, bonds and cash. They include real estate, commodities such as oil, cocoa and gold, capital goods such as ships and aircraft, and even more exotic categories: hedge funds, private equity, project finance, venture capital, art, movies and many more.
Long derided as carrying excessive risk and inferior transparency, alternative investments today may result not only in superior returns, but also in a better match between the assets and activities being invested in and the needs and wants of insurance beneficiaries, especially current and future pensioners. As returns from traditional asset classes have plunged, alternative assets and innovative strategies ought to be considered to boost investment returns. In addition, the regulatory framework of hedge funds has recently changed quite substantially and is now arguably more stringent than highly regulated mutual funds for the retail market. Finally, socially responsible private equity and private credit investments, both relatively new classes of alternative investments, potentially could provide pension funds with opportunities matching both their long-term nature and the increasingly socially responsible mindset of trustees and beneficiaries.