15 September 2020Asset management analysis

Look for opportunities globally, investors told at Bermuda Captive Conference

Captives and other insurance companies should take a global view when looking for investment opportunities, and not be limited to investing in Europe and the US.

That was the view of panelists speaking at the Bermuda Captive Conference’s session titled The Global Impact of COVID-19: Will Investments be Impacted for Captives?

Andries Hoekema, global head of insurance sector at HSBC Global Asset Management, stressed significant differences between countries in terms of their responses to COVID-19, and said this has created opportunities for investors with a global remit that are willing to look outside of their traditional markets.

“In mid March we were seeing lockdowns in Europe at a time when colleagues in Hong Kong were already going back to work,” said Hoekema. “Asia has coped more quickly with COVID and that creates opportunities, particularly for European and Asian insurance companies willing to take advantage.”

Hoekema said post-COVID, investors have to think differently about diversification, both in terms of geography and sector. Investors should not slip back into their old assumptions, he said, even after a vaccine is developed that allows businesses to start returning to normal. Working from home practices, for example, have changed urban economies in ways that will not necessarily change back, he said.

“In some ways COVID accelerated existing trends, around things like digital transformation, that were already underway,” said Hoekema.

Hoekema warned that captives are likely to be investing into a depressed interest rate environment for the foreseeable future. “There won’t be a rebound in interest rates, even if we see inflation pick up a bit, the Fed is likely to let that run for a while,” he said. “Investors need to be ready for a low-forever interest rate environment.”

Bryan Gartenberg, director of sales escrow and specialised services at Texas Capital Bank, argued rates might rise sooner if there is a change of administration in the US at the forthcoming election than they would under a second term with Donald Trump. However, he agreed rate increases in 2021 remained unlikely.

On the other hand, a different administration might invest more in projects like infrastructure and healthcare, noted Gartenberg. “There is some uncertainty either way,” he said.

Peter Princi, managing director of wealth management at The Princi Group, downplayed the likely impact of politics on markets in coming months.

“Whether it is a Democrat or a Republican that wins won’t matter, as long as it isn’t Bernie [Sanders] the markets won’t care,” he said.

Panelists emphasised the importance of managing portfolios with a view to ensuring liquidity is available, even in times of heightened market volatility, learning the lessons of 2020 and also 2008.

Michael Ryan, head of insurance strategy at Sterling Capital, said both crises had reminded investors that stocks that are very liquid in normal market conditions may not be when volatility spikes. Investors should ensure a portion of their portfolio is invested somewhere it will offer liquidity even during a crisis, he said. “You do not want to be forced to sell into weakness,” he added.

Simon Smith, head of offshore corporate investments at Barclays, advised captives to review their investment objectives and strategy and consider whether they had fundamentally changed in recent months.

“It is important to be deliberate about your strategy,” he said. “There is a tendency to throw the baby out with the bathwater at times like these, and make bad decisions, for example over-trading or allowing biases to creep into decision making.”

Smith advised captives to plan properly and make decisions based on quantitative analysis rather than emotions or biases. “This will increase your chances of success ten-fold,” he said.

Smith cautioned against making decisions based on market forecasts. “This industry is littered with crystal balls and broken promises,” he noted.