Lincoln National Corp. (LNC) has room for adding riskier holdings to boost yields after the insurer cut its allocation of junk-rated debt, Chief Investment Officer Ellen Cooper said today.
The insurer is finding value in assets including direct middle-market loans, private placements, commercial mortgages, hedge funds and private equity, Cooper said. Some strategies increase overall new money yield by as much as 0.2 percentage points, she said.
Cooper is working to boost yields on a portfolio of $88.4 billion after joining the Radnor, Pennsylvania-based insurer from Goldman Sachs Group Inc.’s asset management unit last year. She said Lincoln’s overall portfolio yield will probably keep falling as the Federal Reserve’s stimulus policies keep rates low and older investments mature.
“We have the capacity to take risk now,” Cooper said in a presentation to investors. “We’re going to do it in a thoughtful, controlled way, when we think we’re getting paid.”
Cooper said Lincoln has 6 percent of its fixed-maturity portfolio in junk-rated debt, down from almost 10 percent in the second quarter of 2009. Unrealized gains on the company’s bonds have swelled since the end of 2011. About 71 percent of the company’s investments are in corporate bonds and 8 percent are in mortgage loans.
“The significant losses from the financial crisis are behind us,” she said.
At the end of the first quarter, Lincoln had about $847 million in alternative investments. Thirty percent was in hedge funds, a quarter in buyout firms, and 12 percent in energy-focused private equity firms, according to today’s presentation.
Cooper said today that finding the outside companies to help run Lincoln’s investments can distinguish the insurer from peers. She said that Lincoln seeks asset managers that can customize investments for insurers.
“I actually came from an asset manager, and so I very much believe in this overall model,” she said. “We can move in and out of asset classes and opportunities faster than if we needed to actually build a team or fire a team.”
Her remarks echo comments this week by James Tisch, the chief executive officer of Loews Corp., at the Bloomberg Hedge Funds Summit in New York.
“We farm it out because we get enormous diversity by doing that,” he told Bloomberg Television’s Stephanie Ruhle. “By having a hedge fund doing it, we’re able to rent the talent that we want to have. If we’re dissatisfied with their performance, we can fire that talent.”
In an interview in March, Cooper said she was moving about $125 million from multi-strategy hedge funds to managers that employ individual approaches with low correlations to stocks and bonds.
Cooper has also been building her investing team. Last month, she hired Paul Narayanan as managing director of portfolio management analytics from American International Group Inc. (AIG) She also added Jayson Bronchetti from JPMorgan Chase & Co. (JPM) as managing director of tactical strategies in fixed income.
Lincoln slipped 14 cents to $33.74 at 12:33 p.m. in New York. The company has advanced 30 percent this year.
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