Which assets do global insurers expect their best returns to come from?

Goldman Sachs report reveals expectations of firms with $13T on their balance sheets

Which assets do global insurers expect their best returns to come from?
Steve Randall

Some of the world’s largest investors have shared their insights about their portfolio allocations and where they expect to see the strongest returns.

Goldman Sachs Asset Management asked 359 CIOs and CFOs representing more than $13 trillion in balance sheet assets of global insurance companies, as they position themselves to take advantage of the ‘higher-for-longer’ interest rate environment.

“After a year of stronger than expected economic returns, insurers are showing signs of cautious optimism about markets and the global economy in 2024,” said Michael Siegel, global head of the Insurance Asset Management and Liquidity Solutions businesses, Goldman Sachs Asset Management. “The weak returns of 2022 remain fresh in their memories, while global inflation has remained elevated.”

The survey discovered that the top risks identified by insurers’ investment professionals are economic slowdown or recession in the U.S. (52% said this, down from 68% last year although 50% think it’s a risk longer-term), credit and equity market volatility (48%), geopolitical tensions (46%), inflation (42%, down from 55% in 2023), and monetary tightening (27%). China’s economy (7%) and a major cyber incident or deflation (6%) were among the lesser-cited risks.

“We expect Central Banks to execute gradual easing strategies later this year which should be supportive of risk assets across both fixed income and equities. However, given increasing macro risks and the upcoming US elections, there is the potential for higher levels of volatility along the way and a wide variety of outcomes for returns by the end of the year,” said Alexandra Wilson-Elizondo, Co-CIO of Multi-Asset Solutions, Goldman Sachs Asset Management.

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More than eight in ten respondents expect 10-Year US Treasury yields at year-end 2024 to be at or below where they were at the time of the survey, while 17% expect them to exceed 4.25%.

Asked about their asset allocations and which ones they expect to produce the highest total returns over the next 12 months the top five were:

  • Private credit (53%)
  • US equities (46%)
  • Government and agency debt (34%)
  • Investment grade private debt (33%)
  • Developed markets investment grade corporate debt, and private equity (31% each)

“Last year became a fixed income renaissance as insurers renewed interest in the asset class,” said Matt Armas, global head of Insurance at Goldmans Sachs Asset Management. “This year they report taking a risk-on approach and favoring high quality fixed income assets and private credit, which can offer incremental income enhancement, diversification benefits, downside risk mitigation, and resilient returns. This has led insurers into an asset allocation sweet spot, but they recognize that they cannot settle into complacency.”

Looking at the S&P 500 for 2024, 10% of respondents expect high returns of 10-20%; 52% expect 5-10% (versus 38% in 2023); 22% expect modestly positive returns of 0-5%; and only 16% expect the S&P 500 to be flat or down this year (compared to 25% in 2023).