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Alternative or Die:

Why insurers must seriously consider


the alternative investment space.

Sutee Mokkhavesa PhD


Chief Risk & Strategy Officer
Muang Thai Life Assurance PCL

Evolution of the Total Life Premium

Source: OIC and ThaiBMA

Our Primary Investment Instrument

Premium VS Bond Outstanding

Source: OIC and ThaiBMA

Premium VS Bond Issuance

Source: OIC and ThaiBMA

US Interest rates will soon rise?

Fooled by the FEDs

Fooled by the FEDs

How robust is the global economy?

Demographics Issues

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Demographics Issues

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Demographics Issues

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Demographics Issues

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What are Alternative Assets?

Lets define alternative assets


loosely as those assets that
arent correlated to the broader
capital markets.
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Alternative Overview
$6.91 trillion USD AUM in 2014 (AUM increased
$690 billion in 2014)
The Alternative space today represents c. 10%
of the Investment management AUM.
The Alternative Investment space will continue
gain market share. The traditional mgers are
also fighting back with smart beta products.
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Classes of Alternative Assets


Hedge Funds
Private Equity & Venture Capital
Real Estate
Infrastructure
Private Debt
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Hedge Fund is old


1949, Alfred Winslow Jones introduced the first hedge fund
Fund structured -> exemption from the SEC's Investment
Company Act 1940
This implied he could use a wider investment techniques
Short Selling
Leverage
Concentration (Rather than diversification)

Jones committed his own money and introduced performance


fee
Bull market in 60s => underperformance so Long Bias became
popular
During the subsequent bear market of 1972-1974, the S&P
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500 declined by a third => HF wiped out.

Loosely defined as

A hedge fund is a lightly regulated


investment partnership that use a range
of investment techniques and invest in a
wide array of assets to generate a
higher return for a given level of risk
than what is expected on normal
investments.
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Loosely defined as
Expert System
Manager skill in identifying opportunities
Focused on imperfect market sectors
Depend critically upon special skills and knowledge

Long and Short


Return not derived from passive long position

Leverage
(including leverage through the use of derivatives)

Fee Structure
1/10 or 2/20 with high watermark

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Popular Misconceptions

All HFs are very risky or more risky than


traditional assets.
HFs use extremely high leverage
HFs are highly illiquid
HFs love exotic securities
All Hedge Funds hedge Risk
You need to be a billionaire to invest
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Hedge Funds
Equity Hedge

Relative Value

Convertible Bond Arbitrage


Fixed Income Arbitrage
Volatility Arbitrage

Event Driven

Credit

Long Bias
Long/Short
Market Neutral
Short Bias

Distressed/ Restructuring
Equity Special Solutions
Risk Arbitrage/ Merger Acquisition

Asset based lending


Long/ Short

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Hedge Funds
Macro

Managed Futures/
CTA

Others

Multi Strategy

Global Macro
Active Trading
Commodity
Currency

Fundamental
Quantitative

Insurance Linked Securities


Life Settlement

Combining many strategies together


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Pros & Cons


Advantages
Alpha
Diversification benefit
Absolute return mindset
Alignment of interests
Disadvantages
Relatively high fees
Lack of transparency
Lock-up
Not all strategies employ pure alpha to capture return.
Headline Risk

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Hedge Fund Return Compared


to Stocks, Bonds and Commodities

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Source: Centre for Hedge Fund Research

Correlation Between Hedge Funds


and Main Asset Classes

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Source: Centre for Hedge Fund Research

Domicile and Investor Profile


of Hedge Funds

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Source: Financial Conduct Authority

When considering Alt Inv

1. Through understanding of the strategies


2. Verify that the new allocation to the strategy, will
result in an improved Risk Adjusted Return
3. Check that your portfolio is able to withstand the
liquidity constraints of each strategies.
4. Extreme DD
5. ABC of fund and PPP of investment managers
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Thank you

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