Meredith Whitney, the former banking analyst hired by Arch Capital Group Ltd. to help oversee the insurer’s stock portfolio, will also work with the company’s investment team to review possible alternative investments, which can include hedge funds and private equity.
“For instance, if Carlyle says there’s a co-investment opportunity available in A, B, and C, we’ll look to Meredith to help assess that opportunity,” Preston Hutchings, the chief investment officer of Bermuda-based Arch, said in an interview Tuesday, referring to Carlyle Group LP, the Washington-based private-equity firm.
Whitney’s hire shows how insurers are turning to Wall Street for investing acumen as the companies seek alternatives to highly rated bonds at a time when yields are near record lows. Arch last year announced an investment in a new reinsurance venture, known as Watford Re, with JPMorgan Chase & Co.’s Highbridge operation designated to run a portfolio focusing on junk debt.
Arch had a portfolio of more than $15 billion as of Sept. 30, mostly in fixed-maturity securities. Corporate debt, government and agency securities and municipal bonds accounted for the largest allocations.
Whitney’s new role is primarily to oversee of a group of outside managers who invest about $800 million in equities for the insurer, Hutchings said. Arch’s holdings outside of bonds also include real estate, small-business loans and investment vehicles managed by firms including Oaktree Capital Group LLC and BlackRock Inc.
“Her experience is worthwhile to us, and her knowledge with hedge funds, both good and bad, helps us understand our outlook on other hedge funds and how they’re operating,” Donald Watson, an executive vice president at Arch, said Wednesday in an interview.
Whitney rose to fame in 2007 by correctly predicting that Citigroup Inc.’s dividend was unsustainable. The insurance role is a new phase in her career after an unsuccessful stint running a hedge fund.
Insurers can hold funds for years or even decades before paying claims, and the companies say that makes them ideal candidates to look for deals that offer better long-term returns than more liquid securities.
The industry has been allocating funds to private equity and debt markets, Matt Malloy, who was hired this year by money-manager Neuberger Berman from JPMorgan to work with insurance clients, said in an October interview. “You’ve seen a shift from public equity and public debt,” he said.
Aflac Inc. said last week that it is diversifying beyond bonds into so-called growth assets such as public and private equity and hedge funds. Donald Guloien, chief executive officer of Manulife Financial Corp., Canada’s largest life insurer, highlighted the potential for private deals in an Oct. 27 interview.
“You can get different duration, different tenor, different industry diversification than you can strictly in public markets,” he said.
–With assistance from Katherine Chiglinsky and Max Abelson.
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