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Dyslin, World CIO and President of Global Investments, discusses the management of the exhibition to the yen, the role of private investments in insurance giants Portfolio of $ 100 billion and large insurance M & as.
Global finance: You supervise the AFLAC investment portfolio of around $ 100 billion, most of which is in Japan, where the company has a large presence. What big changes have you seen there in recent years?
Brad Dyslin: About three -quarters of all AFLAC things are linked to Japan, with regard to my world – remuneration, cash flow and investment assets. The biggest change we have seen in recent years in Japan has been interest rates. They have been extremely weak for at least the last 25 years, even before the financial crisis. The interest rates of state bonds at ten years were less than 2%, then they became negative in 2016. This also occurred in some places in Europe, but Japan maintained its very low interest rates for a very long time while it was trying to stimulate the economy and revive inflation.
Today, we finally see that happening. Inflation has rekindled in many regions of the world, including Japan. This made the Bank of Japan began to increase interest rates for the first time in at least one generation. In the past two years only, the obligation at 10 years has increased from 0.4%, or 40 base points, to around 1.5%. We have a large part of our portfolio and a large amount of cash flow denominated in yen, and it is obviously new welcomes have higher yields.
Girlfriend: What asset allocation frame do you use to manage the portfolio in Japan?
Dyslin: I will highlight two things that we have done to update our asset allocation in recent years. The first is the way we used US dollars assets for the Japanese portfolio. The second, like a large part of the industry, is the way we used private assets in the portfolio, including private credit and investment capital.
For the assets of the US dollar, this is motivated by our strategic asset allocation and our approach to the management of assets. You can consider our portfolio in Japan as made up of two large pieces. The first piece is the amount of capital that we have put aside for future political complaints. These complaints will be in Yen for our Japanese customers. We support this responsibility with yen assets. Supporting this is the capital of our owners – regulatory and economic capital to ensure that there is a solid financial basis to support these responsibilities. Which belongs to our American shareholders, we therefore hold this capital in American dollars
To summarize, the money due to the holders of policies is in a yen portfolio. The money that belongs to our American shareholders is in an American portfolio. It seems quite simple today, but it becomes a little more complicated when you start to take into account things such as regulatory capital and all the regulations that an insurance company needs to manage.
Girlfriend: What is the impact of the prices taken by the Trump administration?
Dyslin: Prices are a problem with which many business leaders, political leaders and investors are all struggling with. Each indication we have seen suggests that they will be inflationary, but the magnitude remains to be seen. As a yield -based investors, we generally love higher yields but not at the expense of an economy that could face higher inflation.
We have seen the market meet the prices with lower yields. The market tells us that it is more concerned with a slowdown in the economy than on inflation from prices. It is therefore an area that we look at very closely. In terms of security, some companies will be more impacted than others. Some have more capacity to adapt to a tariff scheme than others, and this is where our team of around 20 professional credit investors comes into play. They focus on understanding these companies. This implies understanding their management teams, their capital structures and their cash conversion cycles of all these individual credits. This level of analysis really makes the difference for us.
Girlfriend: There has been a significant mergers and acquisitions in which asset managers acquire insurers. For example, KKR acquired Global Atlantic Financial Group last year. What is your opinion on this trend?
Dyslin: This involved alternative managers buying insurers, as well as the creation of strategic partnerships. I was an insurance money manager all my career, so I find it all very fascinating. It is rewarding to see these alternative managers interested in the assets of insurance companies, and I expect this trend to continue. This is exactly what Warren Buffett has done with Berkshire Hathaway, using stable cash flows and long-term nature of insurance capital to support an investment platform. We have seen an explosion in growth that created very large managers focused on these various alternative assets.
I expect other asset managers to continue to forge partnerships with Capital Insurance. It is much easier to invest when you have regular and recurrent insurance money of bonuses and the generation of portfolio cash, instead of having to continue to collect new funds. With an insurer, you have an underlying company that generates recurring money.
Girlfriend: How do you integrate the change of macroeconomic factors in the execution of the portfolio?
Dyslin: We are not actively based on the portfolio on the basis of macro-conditions such as interest rates or currency fluctuations. The way we tried to neutralize our exhibition at Yen is to set up these two wallets. It is therefore a yen portfolio for yen liabilities and a dollar portfolio for dollar liabilities, or excess of a dollar, which I consider an obligation of our shareholders. This is how we do it in our organization. Each investment manager manages a kind of responsibility. It could be a question of occurring against a reference. It could be a retirement obligation. In our case, these are future insurance complaints. Thus, investing to meet or go beyond the expectations of this responsibility is the key, and that is what we really focus on when we have implemented our strategic asset allocation allowance and to make allowance decisions.
I know you asked how we modify the wallet according to movements in the yen or interest rates. If we have done our job properly – and we have good solid and solid management in terms of asset management – many of this does not matter or does not matter. This will not have a big impact on our portfolio. You do not suddenly see that the wallet move, as interest rates are 50 higher base points.
We make tactical decisions and aim to be opportunistic, but this is done more in terms of security than at the level of the wider asset allocation.
Girlfriend: Most of your state obligations of your assets?
Dyslin: We have a major portfolio of Japanese government obligations, or JGBS. To return to this yen portfolio that I mentioned earlier, we would prefer more credit goods denominated in yen, but it is very difficult to find acceptable investments that meet our needs. We therefore have a lot of JGBS, in part because we need an outlet for investments in yen. JGBS also provide liquidity, and they are very long maturity assets, often 30 years. This helps us to match our long responsibilities against long active ingredients. We also have a portfolio of public bonds for very important companies, which provides not only liquidity but also an additional income based on an American dollar.
Girlfriend: Do you have an exposure to high-performance bonds?
Dyslin: This is about 1% of the portfolio. Most of our high -efficiency exhibition is done through private direct loans on the intermediate market, which, in our view, offers much better value for risk.
Regarding the maturity beaches of the titles we hold, it is really at all levels and varies according to the asset class. For our primary outlet for market loans lower than investment – market loans – these are generally shorter, often with deadlines from five to seven years. Our JGBS tend to be obligations at 30 years longer. Our Axed Investment Quality Credit portfolio generally has matters from 10 to 15 years.