Report: AIG May Exit At Least 50 Percent of Hedge Fund Investments

February 9, 2016 by Sonali Basak

American International Group Inc. plans to exit at least half the hedge funds in which the insurer is invested, according to people familiar with the company’s portfolio.

The insurer has holdings in more than 100 funds and plans to cut that number to 50 or fewer, said the people, who asked not to be identified discussing investing decisions. AIG is planning for increased volatility that could pressure high-risk assets, and for a possible period of limited liquidity in financial markets, the people said.

AIG had about $11 billion dedicated to hedge funds as of the third quarter, and returns on the holdings have slumped in recent months. Chief Executive Officer Peter Hancock said at a Jan. 26 investor presentation that the company intends to lower the allocation, but he didn’t say how many hedge fund managers the company would stick with or provide details on the planned amount of exits.

“We had a very negative experience in hedge funds,” Hancock said in the presentation. Shifting the allocations will “lead to a much better return on risk and especially return on capital.”

New Investing Chief

AIG has an investment portfolio of more than $340 billion, mostly in bonds, and is seeking to free up funds to return to shareholders. Hancock hired former J.P. Morgan & Co. colleague Doug Dachille in July as chief investment officer, and the two are working to reshape the portfolio.

Hedge funds globally have underperformed the Standard & Poor’s 500 Index for seven straight years, and money managers including BlackRock Inc. have decided to wind down some strategies. Seneca Capital Investments and Lucidus Capital Partners are among firms that have disclosed plans to shutter funds, while others suffer client redemptions.

MetLife Inc., the largest U.S. life insurer, said Feb. 4 that private equity and hedge fund investing has proved effective over time, even if fourth-quarter results were disappointing. Chief Investment Officer Steve Goulart said that while MetLife intends to stick with the strategy, the insurer had pared some bets and plans to be “really concentrating on the managers and strategies that have been the longer-term stronger performers for us.”

The people familiar with AIG’s plans didn’t list the funds that the insurer plans to exit. Nor did they specify how much money the company intends to pull. Jon Diat, a spokesman for the New York-based insurer, declined to comment.

AIG is scheduled to announce fourth-quarter results after the market closes on Feb. 11. The California Public Employees’ Retirement System announced plans in 2014 to divest the assets that it invested with hedge funds, saying they’re too expensive and complex.

–With assistance from Simone Foxman.