A risk-neutral investment strategy can prop up returns

A risk-neutral investment strategy, one that immunises captives against known and expected liabilities, has the potential to free up a third investment stream that captives can then put to work.

That is the view of Eugene Durenard, chief investment officer at Capital G in Bermuda, who spoke with Captive International about the defensive posture being employed by many captives in the current economic environment.

Durenard said that once captives are able to achieve a risk-neutral state, “the next step is to ask, ‘how can we maximise current economic conditions in order to achieve returns above that?”’ He suggested that captives can aggressively put to work any funds that are not tied up in a liability-driven investment strategy, recommending preferred equities and high-yield stocks as a welcome addition to the captive portfolio.

He warned that captive investment strategies would need to remain nimble in the face of a richly priced bond market and macroeconomic uncertainties, adding that a defensive posture on interest rate and high grade credit risk would likely be a feature of the investment landscape until quantitative easing programmes by major world central banks draw to a close.