Ellen Cooper, the former Goldman Sachs Group Inc. money manager who is chief investment officer at Lincoln National Corp., plans to boost the insurer’s holdings of private equity while reducing allocations to hedge funds.
By 2018, about 90 percent of its alternatives portfolio will be in private equity with the rest in hedge funds, the Radnor, Pennsylvania-based company said Thursday in a presentation. That’s up from 67 percent last year. While the company invests mostly in fixed-income holdings in a portfolio valued at more than $100 billion, Cooper counts on alternatives like private equity to boost returns at a time when interest rates are near record lows.
The insurer joins American International Group Inc. and MetLife Inc. in scaling back hedge fund holdings after disappointing results. Lincoln reported an annualized return of 4.4 percent since the first quarter of 2012 on hedge funds, compared with 12.6 percent on private equity.
“We’re disappointed with that hedge fund result, that does not meet our expectation,” Cooper said. “So we are shifting the mix” toward private equity.
The yield on fixed-maturity holdings slumped to 4.78 percent in the first quarter from 4.84 percent during the same period a year earlier. Cooper has been reshaping that portfolio as well, cutting the allocation for energy-related, fixed-income investments to 8 percent at the end of April, from 10 percent in the first quarter of last year. Half of the energy-related securities that were sold are now rated below investment grade, according to the presentation.
The CIO is seeking to boost the company’s allocation to commercial mortgage loans, with a target of 11 percent of total invested assets by 2018, from 9 percent 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,” she 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.”