It is one of the biggest insurance companies in the world. But it is also one of the largest unknown institutional investors in the world. AIG (American International Group) has more than $300bn (E277bn) asset under management and so $50bn comes from non-affiliated clients, half American and half European and Asian pension funds, endowments, foundations and wealthy families.
The financial subsidiary that manages all these assets is AIG Global Investment Group. In a meeting at the headquarters in New York, its chairman and CEO Win Neuger – together with other top managers of the group – explained how its marketing strategy is changing.
“We would like to make people aware of our capabilities, which are truly global,” stressed Neuger. “We have a long, consistent record of performances on our assets, in particular in alternative and emerging markets, where a global presence is even more important. We count on over 300 investment professionals in 31 offices around the world, where we have people on the ground, speaking the language, understanding the culture.”
Only during the last few years AIG has been offering asset management products to third parties. The $30bn assets currently managed for institutional clients are one third in alternative strategies – private equities, hedge funds, real estate – and two thirds in traditional strategies.
Kevin Fitzpatrick is responsible for AIG Global Real Estate, which has over 300 professionals managing nearly 400 properties worldwide. “We are among the biggest developers in Hong Kong and other Asian countries, as well as in Western Europe in cities like Paris and London ,” he says. “In Eastern Europe, for example Hungary, Poland and Czech Republic, we have huge operations for cleaning up former industrial sites that are polluted, restructure them and sell them capitalising profits.” Fitzpatrick is confident that international real estate will add higher returns with reduced risks to a mixed asset portfolio in the next years.
Larry Mellinger is the head of AIG’s global private equity activities: he specialises in infrastructure projects both in the US and in emerging markets. For example one of his funds is financing a company that invests in the Russian railroads’ privatisation.
Traditional strategies in equities and bonds have one thing in common: they rely on fundamental, independent, in-house research. The $20bn equity portfolio is managed by 71 investment professionals in 12 offices worldwide under the supervision of Hans K Danielsson, who elaborated the concept of satellite equities. “There are those areas that offer excess returns at the expense of more volatility, but with less correlation to developed stock markets. I am talking about international small caps and emerging markets, especially Asia. We are quite optimistic on the US market, partly because after three bad years it should recover; however the extraordinary past returns are unlikely to be repeated. If you look for double digit returns you’d better invest in small caps and emerging markets”. Danielsson warned that not all small caps are a bargain: “There are a lot of fallen angels and stagnant stocks. Our aim is finding small companies with potential to grow into medium-large caps. This way we earned a 10% annual return during the last five years”. After three years of outperforming developed countries, emerging markets still offer good value with cheap price/earnings ratio, according to Danielsson, who especially likes the Asian countries: “They have stronger financial and commercial positions than in 1997/98, companies have better balance sheets, corporate profits grow well. Besides we have a ‘dynamic model’ to spot in advance risks of new crisis.”
The largest AIG’s portfolio – with $250bn assets – is in global fixed income, under the responsibility of Richard Scott, who explained: “We invest in 41 different countries with two strategies. One is matching assets with liabilities for the general account of AIG; the other one is getting the best possible performances for the total return accounts.” Scott can still see interesting opportunities in credit risk: “US Treasury bond rates are very low and spreads with corporate bonds have already narrowed, but with the economy improving there will be more room to close the gap. Even if rates rise, if you are risk-adverse you may prefer bonds anyway; at least you will get your capital back. Besides, US municipal bonds have been the best investment for American tax payers since 1992, with the only exception of the DJIA index.”