(Bloomberg)—MetLife Inc., the largest U.S. life insurer, is increasing bets on real estate as the company scales back investments in hedge funds.
The insurer is adding to allocations “in segments that require less capital and have more predictable income streams to us, including structured finance and mortgages,” Chief Executive Officer Steve Kandarian said Wednesday at a conference held by Deutsche Bank AG in New York. That contrasts with assets such as hedge funds, which have had “some choppy results,” he said.
Kandarian and American International Group Inc. CEO Peter Hancock have been boosting lending operations to counter low yields on the safest corporate debt and losses from hedge funds. MetLife Chief Investment Officer Steven Goulart said in May that the insurer was seeking to redeem two-thirds of its hedge fund investments.
Holdings of mortgage loans increased to more than $68 billion as of March 31, from about $62 billion a year earlier. Those assets posted an annualized yield of about 4.68 percent in the first quarter, compared with 4.43 percent for fixed-maturity securities, which comprise most of the $524 billion investment portfolio.
The category of “other limited partnership interests,” which includes hedge funds and private equity, has been more volatile, generating an annualized yield of just 2.71 percent in the first quarter and a loss for the three months ended Dec. 31. The annualized yield exceeded 10 percent in other periods last year, however.
Picking Up the Slack
Mortgages and structured securities “are kind of picking up a little bit of the slack of what we’ve sold off,” Kandarian said.
The CEO said the investing shift is part of a broader reshaping of the company as he seeks to reverse a stock slump by increasing the portion of earnings that can be returned to shareholders or used for acquisitions. Regulators can require insurers to hold more capital to guard against losses on riskier assets.
Kandarian is also reducing reliance on products such as variable annuities, where results are tied to fluctuations in capital markets.
MetLife dropped 68 cents to $44.87 at 10:26 a.m. in New York, extending its decline since Dec. 31 to 6.9 percent. The stock slumped 11 percent last year and was little changed in 2014.
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