Institutional Asset Manager Newsletter 21/04/2023

Crypto confusion

Ever since FTX collapsed last year, financial regulators across the globe have been promising to tighten the rules governing crypto providers.
Yet a failure to come up with a comprehensive, consistent regulatory system continues to frustrate the industry and may – according to Brian Armstrong, chief of US crypto exchange Coinbase, drive operations offshore.
Talking to Institutional Asset Manager this week, Maryna Chernenko, managing director of UFG Capital, doesn’t go quite as far as Armstrong, but she does tell us that "a fully-fledged work of funds with crypto assets is only possible once the regulators agree on their classification".
Chernenko makes the point that while regulators continue to diverge in their classification of crypto assets between securities in some jurisdictions and commodities in another, the fund managers are torn between making it easier to build funds (commodities) and protecting investors (securities).
In the UK there may well be some clarity for fund managers after Andrew Griffith, economic secretary to the Treasury, said this week that specific crypto regulation could come into force within a year. Whether this aligns with Europe and US counterparts, however, remains to be seen.
Elsewhere it’s all about high yield credit for insurance companies this year as they week to capitalise on the impact of high inflation, rising geopolitical tensions, and the effects of tightening monetary policy.
Research from Goldman Sachs Asset Management show that despite a deterioration of credit quality and the prospect of a recession in the US, insurers are "leaning heavily into fixed income and seeking to increase duration and credit risk".
And for the first time, insurers ranked increasing yield opportunities in the current environment as the most important factor driving asset allocation decisions.
Matt Armas, global head of insurance asset management at Goldman Sachs, tells us: "Insurers are looking to take advantage of higher rates while managing their market risk. As shown in the survey results, the journey to rebuilding yield, is done with a balance of duration and high-quality credit opportunity."
Private assets are also proving popular, with more than half of global insurers (51 per cent) expecting to increase their allocations over the next 12 months.
This, according to Michael Siegel, global head of insurance asset management and liquidity solutions at Goldman Sachs, reflects insurers’ recognition of the importance of capitalising on illiquidity.
"We expect insurers to continue to build positions in private asset classes, including private credit, private equity and infrastructure, as they seek to diversify portfolios and take advantage of expanding illiquidity premiums," Sigel says.
Gill Wadsworth, Editor

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