Northwestern Mutual Life Insurance Co., the No. 2 seller of the coverage in the U.S. last year, is turning to property investments and private deals after scaling back from stocks during last year’s rally.
“We feel the equity markets are a little bit frothy,” Ron Joelson, Northwestern Mutual’s chief investment officer, said in an interview. “In the private-equity markets and in real estate, particularly in certain areas, we’re just seeing more value than we are in common stock.”
Joelson, 55, is seeking to squeeze more income out of Milwaukee-based Northwestern Mutual’s $184.4 billion portfolio without taking on too much risk. His options are limited, with U.S. bond yields near record lows and stock valuations above the average of the past decade.
Northwestern Mutual cut stock investments by almost a third last year to $2.97 billion, as the Standard & Poor’s 500 Index (SPX) jumped 30 percent. Mortgage-loan holdings rose by $2.5 billion to $26.8 billion, while private-equity investments made up about 3 percent of the company’s assets. Joelson said he’d like to boost the ratio to 4 percent, though it may be a struggle to find the right bets.
The insurer favors private investments in more mature companies, typically avoiding venture capital deals and technology firms, Joelson said.
“In the private-equity world, we’re probably more on the conservative end,” Joelson said. “The more boring, the better for us.”
Offices make up 31 percent of Northwestern Mutual’s real estate loans, retail buildings account for 30 percent and apartments are 27 percent. Joelson said multifamily properties provide “a lot of value” and can be more resistant to slumps.
“It has some good resiliency when markets turn down and, of course right now, there’s still a lot of people out there that are choosing to rent,” he said. “Multifamily housing is one of our big areas.”
MetLife Inc. (MET), the largest U.S. life insurer, is targeting increased investment in apartment buildings in major U.S. cities including New York and Los Angeles, Robert Merck, who oversees the company’s real estate lending, said last week. Apartments are benefiting as home ownership becomes less common, particularly among young professionals, he said.
Joelson joined Northwestern Mutual in 2012 from Genworth Financial Inc. (GNW), replacing Mark Doll, who had a 40-year career with the company. Before working at Richmond, Virginia-based Genworth, he held posts in asset management at Prudential Financial Inc. and then JPMorgan Chase & Co.
He said it can be difficult for Northwestern Mutual to deploy funds quickly enough into its favored investments. The company has been allocating cash it can’t immediately invest elsewhere to bonds, contributing to the 6.8 percent increase in the fixed-income portfolio to $122.3 billion.
Investment-grade corporate bonds yield about 3.2 percent, compared with an average of 4.9 percent over the past decade, Bank of America Merrill Lynch index data show. The S&P 500 trades for 17.3 times reported earnings, close to the most expensive since 2010. That compares with a 10-year average multiple of 16.2, according to data compiled by Bloomberg.
Northwestern Mutual is rated AAA at Moody’s Investors Service and one level lower at Standard & Poor’s. The policyholder-owned firm, which is exploring the possible sale of its Russell Investments unit, was the No. 2 seller of life insurance last year by premiums, according to data collected by the National Association of Insurance Commissioners. MetLife is ranked first by that measure, which excludes annuities.
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