Australian general insurer QBE is strategically shifting its investment portfolio towards riskier assets, with significant investments in private credit and infrastructure, to capitalise on AI-driven market trends and navigate the changing economic landscape, said Gary Brader, the group’s chief investment officer. Asian investor.
QBE is listed on the Australian Securities Exchange (ASX), is headquartered in Sydney and operates in 26 countries.
With $30 billion in assets under management, QBE has maintained its core interest rate allocation of 86 percent while increasing its risky asset allocation from 12 percent to 14 percent, with a long-term target of 15 percent, according to half-year results released on August 9.
Gary Bradley
QBE
“Earlier this year, we believed that the equity market was receiving significant tailwinds from AI. We believed that growth was strong enough, particularly in the U.S., that the policy environment was supportive enough, and that the American economy and other regions where we operate were a good place to take some risk and be rewarded for it,” Brader said.
This strategic move proved to be a good decision as the insurer increased its stock holdings just before a significant rally in the US and European markets.
The company also invested in retail credit and infrastructure, strengthening these portfolio segments through gradual exits.
In addition, the company made significant commitments to private lending and infrastructure.
“These commitments are being drawn down gradually, so there has been a natural and expected drawdown of these commitments to build up our reserves,” Brader said.
This approach enables QBE to strategically increase its exposure to these asset classes over time, capitalising on market opportunities whilst managing risk.
“Infrastructure will account for 4% of the portfolio globally. Private credit will likely be around 1.5% this year and grow through 2025 as commitments withdraw capital.”
“Equities make up around 2.5 percent, real estate around two percent, and high-yield and emerging market bonds around two percent each,” says Brader, outlining the diversified composition of the company’s risk assets.
DIVERSIFIED PORTFOLIO
Although allocation remains modest, QBE is increasingly focusing on infrastructure and private credit.
The company recently committed over $200 million each to Ares for U.S. private loans and KKR for its diversified core infrastructure fund.
“As a property and casualty insurance company, we entered infrastructure as an asset class relatively early. On average, we hold slightly more of it than our competitors. Infrastructure has developed wonderfully stably and is highly dependent on inflation,” said Brader.
When it comes to private credit, Brader firmly believes in the potential of this asset class.
“We remain optimistic about the growth and value prospects in private credit. We are attracted by the illiquidity premium and the fact that more and more credit is being moved from banks into the hands of private credit managers. We believe we can slowly turn to more of this exposure.”
Since the majority of the portfolio is invested in fixed-income securities, QBE closely monitors possible policy changes by the US Federal Reserve.
“Like the rest of the market, we expect the Fed to join many other central banks and begin an easing cycle in the second half of the year,” Brader said.
“We expect yields to remain slightly lower over the next 12 months as the Fed understandably embarks on a series of gentle rate cuts.”
Trends and outlook
Looking ahead, QBE is closely monitoring several market trends that could significantly impact its investment strategy.
“We are seeing a continuation of the trend towards deglobalisation, with supply chains moving domestically or to other countries and capital mobility decreasing. This is impacting the countries and companies we include in our investment universe. We are careful to invest our capital where we believe it is safe, respected and well managed,” he said.
He also addressed possible challenges in achieving inflation targets.
“Although disinflation is widely considered to be well-entrenched, the final step toward achieving inflation targets may prove difficult. We believe it makes sense to have more infrastructure and inflation protection in the portfolio as we design our portfolios for 2025 and beyond.”
Brader also sees growing opportunities in infrastructure investments in developed markets, especially given escalating geopolitical storms and the increasing energy demands of AI-driven data centers.
Like most sophisticated institutional investors, QBE’s commitment to sustainability is critical to shaping its investment strategy and portfolio decisions.
Brader highlighted the company’s Premiums for Good program, which has the dual purpose of engaging customers and expanding impact investing.
“This program is both part of our customer engagement by accompanying us on a journey towards sustainability and a form of our ambition to increase the share of impact investments in the book,” he said.
“As we find and help build assets that meet our risk and return objectives, we are always looking for investments that also meet the criteria for inclusion in our impact asset portfolio and demonstrate a conscious and measurable environmental or social benefit.”
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