Quantifying Exposure to JVs, LLCs, and Other Private Investments

Private placement investments have made headlines for more than a decade, but stories behind the headlines started to change in 2023. Private placement securities were originally touted as less-transparent but higher-yielding investments that could provide incremental yield to investors with long-term investment horizons, such as insurance companies.

However, stories behind the headlines have started to change. Most recently, reports have emerged that fund managers have exercised gating options that restrict an investor’s ability to redeem positions. Other recent headlines describe the secondary market for private placements as less-than-robust, which may reduce prices and options available to current investors that seek to exit positions.

It is well recognized that private securities frequently require long-term commitments of capital that may be invested in joint ventures and limited partnerships, for example. However, stories of fund managers that exercise gating options to restrict fund withdraws and weak secondary markets that limit exit options may extend actual commitment times beyond investors’ original expectations.

For insurance companies, these recent headlines present important changes that will normally be addressed during the asset / liability management process (ALM management). The ALM process ensures that the maturity and liquidity of assets is sufficient to meet liability obligations, such as policyholder claims and annuity payments.

This report identifies data and functionality available through FactSet to understand insurance company exposure to private placement investments such as funds, joint ventures, and limited partnerships as reported on Schedule BA (“Other invested assets”). Exposure levels vary, and MET, PRU, and HIG are examples in the report that demonstrate the variability in exposure, which is typically low-single digits but rises to over 20% of an entity’s total invested assets. 

Shown below is a Summary Investment Schedule on the FactSet Workstation for each entity of an insurance company. The example shows the schedule for one of Prudential Financial Inc.’s entities. The red box highlights 6.5% of the entity’s total investments are reported on Schedule BA, which include joint ventures, limited partnerships, and funds.

Security-by-security details on Scheduled BA for this entity include funds managed by Apollo and Blackstone as well as joint ventures, partnerships, or LLCs such as Ares US Real Estate Opportunity Fund VI, L.P. and Carlyle Partners V, L.P, VI, L.P and VII, L.P. These investments, and the others listed on Schedule BA, account for the 6.5% of total investments referenced above and in the red box below. 

To easily quantify the level of an entire company’s BA investments, a Schedule BA summary template will be available in the FactSet template library in April to provide an overview of a company's statutory entities with high-level, Schedule BA details such as the schedule’s assets as a percentage of total assets. For example, the 6.5% from the entity’s summary investment schedule above is highlighted in the red box in the summary template below. The percentage of BA investments for Pru’s other entities are also shown in the summary template and range from nothing to 6.5%. 

Source: FactSet

The screenshot below is an overview of Hartford’s exposure to BA investments, broken out by entity. The BA investments for Hartford’s entities as a percentage of total investments range from nothing to over 20%. 

Source: FactSet 

The last example is a screenshot of MetLife’s exposure to BA investments, broken out by entity. The BA investments for MetLife’s entities as a percentage of total investments range from nothing to over 8%. 

Source: FactSet  

Macro Trends

The latest readings of macro data show no material changes from the prior release.

Inflation remains above the Fed target of 2%, and investor attention is focused on the impact of higher energy costs. In our most recent report, Gas Prices, Benefit Ratios, and Inflation, we made the case that Allstate and Progressive may benefit from ongoing higher gas prices if driver habits adjust and lower miles are driven.

Labor data remains lackluster but has not (yet) deteriorated to the point group premiums will be significantly hurt. We addressed the risk of further deterioration in a prior note, Insurance: Contrary to Positive Estimates, Jobs Data Points to Headwinds, and highlighted insurance companies with concentrations of group premiums. 

Linking Macro Trends to Potential EPS Impact

Our Macro Tracker table lists key economic data relevant to insurance company earnings. The right-hand column ties macro trends to the potential impact on company earnings. 

Insurance insight reports can be accessed from the FactSet Workstation using the Document Search function with this search string: "Insurance Tracker: Event of the Week".  

Insurance Solutions

Deep sector data and functionality shown in this report are available through the FactSet Workstation. Learn more about FactSet insurance solutions that combine investment research, portfolio construction, and risk management in a cloud-native platform. Our comprehensive tools enable investment and actuarial teams to enhance asset modeling and capitalize on market opportunities.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.