Fixed income is the cornerstone of Bliwa Livförsäkring’s investment portfolio. To identify additional sources of return, however, the Swedish insurer looks beyond fixed income, particularly to real assets. Accounting for around one-fourth of the portfolio, alternative investments span real estate, infrastructure, forestry and hedge funds. Fredrik Fors, CIO of Bliwa Livförsäkring, sees value in assets with distinct risk-and-return characteristics. While higher interest rates have raised the bar for attractive investments, he believes opportunities remain for investors who carefully assess individual strategies and understand their intended role in the portfolio.
Bliwa approaches alternative investments as a means of diversifying beyond traditional listed equities and fixed income. While diversification has historically been a primary motivation, Fors believes alternatives have increasingly become a source of returns in their own right. “Historically, alternatives have primarily served as a diversification factor in the portfolio. Today, they are also a return driver,” he says. “As markets and the investment industry evolve, we need to diversify and find sources of return beyond traditional assets. Investment opportunities are no longer limited to listed equities and bonds.”
“As markets and the investment industry evolve, we need to diversify and find sources of return beyond traditional assets. Investment opportunities are no longer limited to listed equities and bonds.”
Fredrik Fors, CIO of Bliwa Livförsäkring.
Within its alternative allocation, Bliwa distinguishes between real assets and hedge funds. Its real-assets exposure includes real estate, infrastructure and forestry, providing access to different economic drivers and risk characteristics that complement the insurer’s traditional holdings. For Fors, the key is to understand what each investment brings to the portfolio rather than treating alternatives as a single asset class.
“It is important to assess which characteristics you want to have in your portfolio,” he says. Depending on the strategy, alternative investments can provide diversification, potential inflation protection and exposure to return drivers that are difficult to replicate through listed markets.
Forestry and Timber Offer Long-Term Stability
Among Bliwa’s real-assets investments, forestry and timber illustrate the appeal of assets with a different return profile. Although forestry may attract less attention than other investment categories, Fors believes its characteristics can make it a valuable component of a diversified portfolio. “Forestry is attractive because it offers something relatively stable that we can rely on over the long term, without the same level of volatility you might see in other investments,” he explains.
“Forestry is attractive because it offers something relatively stable that we can rely on over the long term, without the same level of volatility you might see in other investments.”
Fredrik Fors, CIO of Bliwa Livförsäkring.
That does not mean forestry or other real assets are without risk. Outcomes depend on the underlying assets, investment structure and manager. The priority, Fors explains, is to understand these characteristics and determine whether they match the portfolio’s objectives.
Higher Interest Rates Raise the Bar for Real Assets
The higher-interest-rate environment has made investing in real assets more challenging. Increased financing costs and the higher yields available from traditional fixed income have changed the relative attractiveness of alternative investments, placing greater pressure on managers to demonstrate the merits of their strategies.
“The environment has become more challenging. The hurdle for finding attractive investments is higher, and managers have to work harder to make their strategies competitive,” says Fors. “But there are still good structures and strategies to be found.”
Real estate faces many of the same pressures. Higher financing costs and changing return requirements can make it harder for managers to structure investments that meet investors’ expectations. Nevertheless, Fors sees scope for selective investment. “Even in this challenging environment for asset managers, there are still attractive strategies from an investor’s perspective,” he says.
For Bliwa, this reinforces the importance of selectivity and due diligence. Rather than assuming that real assets are attractive because of their long-term characteristics, the insurer evaluates individual opportunities based on their expected contribution to the portfolio.
Manager Selection and Local Expertise
Finding the right investment partners is a key part of Bliwa’s approach to alternatives. Bliwa applies a defined framework across its investments, adapting the due diligence process to the characteristics of each strategy. “We have a framework that we apply across our investments, with a clear process for conducting due diligence,” Fors says. In specialized areas such as infrastructure and forestry, finding suitable managers can be more difficult, particularly when local expertise and a close working relationship are important considerations.
“We look for managers and strategies that are best suited to our needs, given our size and requirements.”
Fredrik Fors, CIO of Bliwa Livförsäkring.
Those requirements can narrow the field of potential managers. Finding an infrastructure or forestry manager with a strong local presence in Sweden is not always straightforward, Fors notes. Local knowledge and proximity can matter when investments involve tangible assets, specialized markets and long investment horizons. “We look for managers and strategies that are best suited to our needs, given our size and requirements,” Fors says.
For Bliwa, the priority is to find investments that meet its specific requirements rather than gain exposure to every alternative asset class. In a more demanding market, each allocation must justify its place in the portfolio.
Reviewing the Role of Alternatives in the Portfolio
Bliwa reviews the role of its alternative investments as part of its annual asset-liability management process. While real assets account for a meaningful share of the portfolio, the insurer’s allocation to hedge funds remains relatively small. That could change following the insurer’s upcoming portfolio assessment.
“We carry out an asset-liability management study every year to assess the overall portfolio construction and how we can best balance risk and return,” Fors says. “That analysis may point to a need to increase our allocation to hedge funds.” Recent market conditions could also present an opportunity to revisit the allocation. “Hedge funds have faced headwinds over the past couple of years as markets and the investment environment have changed. We are evaluating if we should increase our allocation,” he adds.
Any increase would depend on how hedge funds fit into Bliwa’s overall risk-and-return objectives, with diversification and their contribution to the broader portfolio remaining central considerations.
