Insurance asset managers are increasingly turning to outside experts to manage their funds as acceptance of third-party managers grows and the demand for greater portfolio transparency intensifies, according to a new study.

The study from Clearwater Analytics, a New York Stock Exchange-listed technology platform for investment management, covered insurance asset managers at firms in Asia-Pacific, including Hong Kong and Singapore, with total assets under management of US$3.82 trillion.

In Hong Kong, the study finds that on average 35% of the firms’ funds are managed externally. All those surveyed delegate management of some funds to external managers, ranging from 30% to 45%.

The executives working for the asset management arms of life, health, and general insurers are predicting a major shift over the next five years, with more funds being delegated to independent managers.

Almost nine out of 10 ( 88% ) respondents in Hong Kong forecast a switch towards more assets being managed outside their firm, while 6% predict more assets will be managed in-house. Just 6% expect the balance to remain the same.

The pace of change in Singapore is likely to be slower – just 63% in the city-state forecast a switch towards more assets being managed outside their firm, while 26% predict more assets will be managed in-house. Just 11% expect the balance to remain the same.

Greater control

In Hong Kong, respondents cite the overall improvement in the reputation and acceptance of external managers as the top reason for the shift, with greater transparency and better reporting ranking second. Asset managers in Singapore, on the other hand, say the shift was driven primarily by the need for greater control over investment portfolios, while greater transparency and better reporting ranked second.

Increased visibility of investment portfolios and the greater control over portfolios and analytics offered by external managers followed closely in the poll in Hong Kong.

Outsourcing is often seen as a way to cut costs and cover a lack of in-house expertise. But these ranked as the two least important factors driving the changes, the survey finds.

“The use of third-party asset managers in Hong Kong will accelerate as insurers become increasingly comfortable with the practice and seek specialized expertise for complex private market investments,” says Shane Akeroyd, chief strategy officer and president of Asia-Pacific at Clearwater Analytics.

“This shift is not being driven by a desire to cut costs or due to a lack of internal talent, but the adoption of technology and the growing use of platforms which provide insurers with greater control and transparency within their portfolios.”

Data complexity

Data integration is the most pressing challenge facing insurance asset managers, closely followed by asset complexity – both factors are influenced by the increased use of third-party asset managers.

These data management challenges are set to intensify, as all respondents plan to increase diversification over the next three years, including 26% planning to increase diversification dramatically, with private market allocations expected to grow from 19% to 26% of holdings within five years.

Meanwhile, 88% are increasing their use of third-party asset managers, greatly increasing data complexity. But only 60% say their technology systems are very effective at processing new asset classes.

Almost all ( 98% ) of respondents agreed – and 44% strongly agreed – that insurers are now working with more asset managers than before, resulting in data in multiple formats and increasing difficulty in accessing the information required.

“As insurers diversify their investment strategies and engage more external managers, the ability to bring together and analyze data across disparate asset classes and systems has become critical,” says Akeroyd. “With private markets set to represent more than a third of future allocations, firms can no longer afford the performance gaps we’re seeing in foundational capabilities.”

The study also explored how insurers are responding to skills and capability gaps within investment management functions. The top strategies to combat the issues include recruiting people from a broader range of sectors or with a greater diversity of perspectives; hiring more specialists in risk management roles; and outsourcing all or more to respected third parties.

“These operations require integrated platforms that simplify complexity, strengthen risk oversight, and scale seamlessly as portfolios grow and regulations evolve,” Akeroyd notes. “With all firms surveyed expecting increased M&A activity, the firms that close these capability gaps first will have a significant competitive advantage as the sector consolidates.”