CASE STUDY

Core Fixed Income

UK insurer | 2020

Engagement at a glance

The client, a European multinational property and casualty (P&C) insurer, was looking to re-tender a multi-billion-dollar, multi-currency fixed income portfolio invested in high-quality, short-duration bonds to new asset managers and reduce associated fees. The challenge was compounded by the client’s numerous existing asset manager relationships, which spanned several major geographies, including Bermuda, Europe, North America and the UK. The client’s paramount objective was to rationalise these investment relationships and work with partners that could offer state-of-the-art insurance expertise across currencies, regions and regulatory jurisdictions; as part of that process, the client was also seeking assistance in identifying and mitigating ESG-related risks.

Client-specific concerns:

The client had developed numerous external manager relationships over the years that spanned different regions and currencies, broadly matching the geographic spread of its global business. Consequently, the insurer’s fixed income portfolio was not one whole portfolio, but rather a myriad of accounts—some large, but many quite small.

This client was intent upon finding new investment partners that could bring above-average knowledge of global capital markets to its internal team. Managers were required to provide evidence that they could deliver regular capital market expectations for all major USD-, GBP- and EUR-denominated publicly traded asset classes, as well as some other specific asset classes.

Beyond maximizing medium- and long-term risk-adjusted returns, managers were also expected to provide the client with the best possible return adjusted for regulatory capital charges, i.e. they had to demonstrate their capabilities to continuously monitor regulatory innovations across jurisdictions and integrate those changes into solutions for insurance clients.

The client also needed at least one prospective manager to implement an overlay strategy to mitigate total portfolio risks arising from duration, currency, equity, and other beta exposures.

From an operational point of view, the prospective managers had to have excellent operational infrastructure and an ability to manage smaller, sometimes temporary transitional portfolios for short periods of time to support the movement of assets for the parent company’s global insurance business. The client also wanted at least one of its new managers to provide risk monitoring at the overall portfolio level.

Outcome

  • Using internal resources more efficiently: Given the comprehensive scope of this project, bfinance helped the client identify managers that could act as partners to simplify oversight of the insurer’s portfolio and investment operations—creating a streamlined solution, leveraging the managers’ broader capabilities to outsource ancillary services and thus freeing up the client’s own internal resources to focus more closely on business strategy.

  • Extracting better value for money from external managers: bfinance sought to help the client achieve better returns—and to do so in a way that was cost-effective and time-efficient. To that end, the team assisted the client in realising a 30% reduction of the total management fee package; the competitive tender process was instrumental in achieving this outcome.

  • Mitigating ESG-related risks: Separately, but significantly, bfinance also helped identify managers that could assist the company’s efforts to protect its portfolio from ESG-related risks. The bfinance team leveraged its ESG expertise to assist the client in developing an ESG risk framework and identifying candidates that offered cutting-edge integration of ESG-related factors as part of their overall investment approach (with a focus on climate impact).

Our specialist says

}