Lincoln National Corp. plans to boost its holdings of private equity while reducing allocations to hedge funds.
By 2018, about 90% of the insurer’s alternatives portfolio will be in private equity with the rest in hedge funds, the company said in a presentation Thursday. That’s up from 67% last year. While the company invests mostly in fixed-income holdings in a portfolio valued at more than $100 billion, Chief Investment Officer Ellen Cooper is counting on alternatives like private equity to boost returns at a time when interest rates are near record lows.
The insurer joins American International Group and MetLife in scaling back hedge fund holdings after disappointing results. Lincoln reported an annualized return of 4.4% since the first quarter of 2012 on hedge funds, compared with 12.6% on private equity.
“We’re disappointed with that hedge fund result; that does not meet our expectation,” Ms. Cooper said. “So we are shifting the mix” toward private equity.
The yield on fixed-maturity holdings slumped to 4.78% in the first quarter from 4.84% during the same period a year earlier. Ms. Cooper has been reshaping that portfolio as well, cutting the allocation for energy-related, fixed-income investments to 8% at the end of April, from 10% in the first quarter of last year.
The CIO also is seeking to boost the company’s allocation to commercial mortgage loans, with a target of 11% of total invested assets by 2018, from 9% in 2015, according to the presentation. Those holdings are mostly in apartment, office and industrial properties, and largely concentrated in the U.S. Pacific and South Atlantic regions.
“This is a place where we have been very focused in growing,” Ms. Cooper said of real estate lending. “We have an internal team that has a long track record of excellent portfolio performance, has a long track record of managing through credit cycles, and understands disciplined underwriting.”