S2 Ep. 36 - Investing like an insurer with Rob Groves

Investment Uncut

We are joined by Rob Groves, CIO of Pension Insurance Corporation, a $50bn asset owner and bulk annuity writer. We discuss Rob’s philosophy on investing, how insurers approach investment, the role of regulation, changes and trends he’s seen as well as current market concerns. Philosophy As an insurer they are not focusing very much on the performance of the asset portfolio. It is all about cashflows and if/when these get delivered. Their financial success is not driven by the performance of the portfolio, so in the most part the total return of the portfolio is not even measured. This gives a very different focus to most investors, and one that is genuinely longer term. What works well? Ensuring you have high quality people, a focus on things you understand, and not underestimating the importance of gut-feel. Decision making There are particular challenges to a situation where you have an Investment Committee overseeing an in-house team. It’s important to have an open culture within the team where it’s acceptable to write-off several months of work if someone just doesn’t think the investment idea is good enough. One way of avoiding groupthink is having individuals who have adjacent expertise. Changes trends The use of illiquid assets continues to be a big trend among insurers. There can be some laziness inherent in the way the industry looks at these: the liquid/illiquid buckets increasingly don’t always fit. There has been a deterioration in credit quality generally. Current worries Still mainly focused on the Covid-19 impact: downgrades and defaults in bond portfolios eg airports etc. Inflation and interest rates remain bigger picture macro themes that are important, but don’t underestimate the ongoing impacts of Covid-19. One thing to take away An annuity writer is not focused on market values – they are focused on credit quality. Most underappreciated thing The economy often has a fairly low correlation with what’s going on in markets. It is easy to listen to very sensible sounding economic views, but often the markets do the opposite and it’s easy to over-focus on the economic side of things.