Life insurers in Asia – excluding Japan – are keener on the idea of alternative investment areas such as hedge funds and private equity, with some major firms putting in at least 10 per cent of portfolios into this area.

Life insurers in Asia – excluding Japan – are keener on the idea of alternative investment areas such as hedge funds and private equity, with some major firms putting in at least 10 per cent of portfolios into this area, new research finds.

Cerulli Associates, the consultants and research firm, polled life insurers in the region to find out their views. It found that across the region, life insurers plan to boost their investments in hedge funds and private equity from 1.9 per cent and 3.4 per cent, respectively at the end of 2013, to 2.6 per cent and 5.0 per cent respectively over the next two to three years. This is one of the findings of the report, Asian Insurance Industry: Rethinking Investment Strategies.

"Appetite for alternative assets is strong, with some major insurers having target allocations of as much as 10 per cent for these assets," Manuelita Contreras, a senior analyst with Cerulli who led the report, said.

To some extent, the views appear to chime with broader findings from other surveys about appetite for “alternatives” – a term covering everything from hedge funds through to collectibles. A report in 2012 by McKinsey said institutional investors at that time about $24 trillion under management globally (excluding defined contribution pensions); that figure has almost certainly increased.

The uptrend has not been uniform, however. Performance in some areas, such as hedge funds, has chilled some investors’ enthusiasm, most famously that of CalPERS, the $300 billion public pension fund in the US that recently announced it was pulling out of the sector, saying returns did not justify the costs. (To view more on that story, see here.) According to second-quarter figures from Preqin the resesearch firm, Q2 performance improved from a lacklustre Q1, with year-to-date returns at 3.86 per cent but behind the 4.28 per cent result in the second quarter of 2013.

The Cerulli report said interest and actual investments in real estate assets are particularly robust among insurers with large life funds in Korea, Taiwan, and China. Hedge fund and private equity investments are gaining ground as well among Korean insurers.

"Infrastructure investments are also in vogue in China, where insurers have invested in trust products and derivatives since regulators allowed these instruments in the country", says Yoon Ng, Cerulli's Singapore-based Asia research director.

The pursuit of higher yield has also pushed many insurers, particularly in Korea and Taiwan, to step up their overseas investments. While Taiwanese insurers have long been big investors in overseas assets, with many of them having nearly hit the 45 per cent foreign investment cap, Korean insurers have only started in recent years to more actively and seriously look at offshore investments, Cerulli said.