Whitepaper

Invesco Global Real Estate Debt: A source for diversification for insurers

8 February 2021
Invesco
Invesco Global Real Estate Debt: A source for diversification for insurers

Why should Insurers consider Real Estate Debt?

Real Estate Debt offers yield and diversification benefits coupled with reasonable capital requirements

  • In the current low yield environment with compressed spreads in public bond markets, Real Estate Debt is an attractive alternative to public bonds.
  • Senior Real Estate Debt investments offer higher rates of return when compared to corporate bonds of similar credit ratings.
  • Real Estate Debt provides portfolio diversification benefits versus both equity and bond markets, and also versus direct real estate, due to the specific value drivers of individual properties.
  • Insurers may capture the diversification benefits within an internal model, or within the ORSA1 for those insurers with standard models.
  • Senior Real Estate Debt markets exhibit a loan to value (LTV) which is lower than 60% compared to an average of just 40% for corporate bonds.
  • Senior Real Estate Debt is secured against an underlying property which serves as collateral and could offer a higher recovery rate than the typical corporate bond recovery rate (40%).
  • Real Estate Debt is the most common private debt investment allocation by insurers, and is forecast to see increases in the future2. 

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Footnotes

  • 1 Own risk and solvency assessment.

    2 EY asset manager survey 2020. 

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

    Property and land can be difficult to sell, so investors may not be able to sell such investments when they want to. The value of property is generally a matter of an independent valuer’s opinion and may not be realised.

    Real estate investments are exposed to counterparty risk, which is the risk that a counterpart is unable to deal with its obligations.

    Many Real Estate investments are illiquid, meaning that the fund may not be able to sell them quickly at a fair price and/or that the redemptions may be delayed due to illiquidity of the underlying investments. 

Important information

  • Data as at 30 September 2020, unless otherwise stated.

    Where individuals or the business have expressed opinions, they are based upon current market conditions, may from those of other investment professionals and are subject to change without notice.