ILS stands-out in private assets, still the least correlated strategy: Rode, Schroders Capital

Insurance-linked securities (ILS) are a stand-out asset class within the private assets segment, according to Nils Rode, Chief Investment Officer, Private Assets, Schroders Capital, who said yesterday that the ILS investment environment remains one of the best ever.

Speaking during an event yesterday, in which experts from asset manager Schroders gave their investment outlooks for 2024, Nils Rode explained the need for investors to look to diversifying and uncorrelated assets.

The investment landscape is being reshaped by a ‘3D Reset’ – which spans the three ‘Ds’ of decarbonisation, demographics and deglobalisation, Schroders believes.

Because of this, the firm expects private assets, diversifiers and asset classes that lack correlation, are going to become more attractive and every investor should be considering the range of asset classes they invest in, giving alternatives a proper look and not just re-upping the same asset classes they have always allocated to.

Rode explained that investors need to “really focus on the long term trends, which really matter for private assets.”

He said that, “Investors should not automatically continue with what has worked in the past. Instead, strategies and investments should be evaluated for their suitability for the new world we are entering. In conclusion, this is a time to be forward-looking and thoughtful.

“The 3D Reset, the AI revolution, and the private markets slowdown and higher global interest rates mark a new era for private assets investment. By focusing on long-term trends, diversifying portfolios, and rethinking past strategies, investors can navigate this new era successfully.”

The next decade and the next 50 years, looks very different to the past, Rode said, meaning that “it’s good to think about diversification because there can be volatility.”

“We believe it’s very advisable for every investor to rethink their investments, and to rethink if the strategies and investments of the past are really the best strategies and investments for the future,” Rode commented.

So where should investors look? Rode highlighted insurance-linked securities (ILS) as an important and timely investment opportunity a couple of times during the event.

Rode explained, “There are great opportunities to generate income at very interesting rates across the board now.

“If one strategy stands out, it’s insurance linked securities which has one of the best environments ever, and it’s the least correlated strategy of all.”

Schroders also highlighted the opportunity in a new report on the firm’s investment outlook for 2024, writing, “As the world transitions from one historic era to the next and goes through a post-pandemic slowdown, diversification of a private assets portfolio is especially important.

“Adding less correlated assets, such as insurance-linked securities and microfinance, can provide more stability.”