MetLife to Miss Targets on Private Equity, Hedge Fund Bets

  • CFO says variable investment income below low end of range
  • Goulart says insurer seeing headwinds in alternatives

MetLife Inc., the largest U.S. life insurer, said it will miss targets for some investments beyond its bond portfolio because of lower-than-expected returns from private equity and hedge funds.

The insurer expects variable investment income, or VII, “to be below the low-end of the planned range in the fourth quarter,” Chief Financial Officer John Hele said Friday in a conference call discussing the New York-based company’s outlook. “For full-year 2015, we anticipate that VII will come in modestly below the low-end of the full-year planned range,” which was $1.3 billion to $1.7 billion.

MetLife and American International Group Inc. are among insurers that turned to alternative investments to diversify their portfolios and seek better returns than available on high-grade bonds. Because of their volatility, the funds have an outsized impact on quarterly results. Hedge funds gained 0.4 percent through November, which put them on pace for the worst year since 2011, according to data compiled by Bloomberg.

“There clearly were headwinds in the alternative sector,” Chief Investment Officer Steven Goulart said on the call. “What we’re expecting in 2016 is that our returns on the private-equity portfolio will be in the low-to-mid double-digit range, which is somewhat in line with historical levels.” Investments in hedge funds should return to the mid-to-high single-digits range, he said.

Stock Slump

MetLife dropped 3.6 percent to $47.12 at 4:15 p.m. in New York, extending its slump for the year to 13 percent. The company was little changed in 2014.

Most of MetLife’s $500 billion investment portfolio is in fixed-income securities, which yielded 4.7 percent in the nine months ended Sept. 30. The insurer also has holdings in equities, mortgage loans and real-estate joint ventures. The yield on other limited partnerships -- which include leveraged-buyout and hedge funds -- was 11.3 percent in the first three quarters of 2015 compared with 14.1 percent in the same period of 2014.

MetLife said that variable investment income will probably be $1.2 billion to $1.5 billion next year.

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