All about Social Media Analytics

 

Some Interesting facts:

  • 1 out of every 8 people on earth are on facebook
  • 9 out of 10 US internet users are on a social network
  • 1 of 5 minutes spent online is on a social network and on average the time spent on social network has increased from ~8% in 2007 to ~20% in 2012
  • In one minute we produce: 694,980 status updates and 532,080 tweets
  • Average number of friends in real life: 150, whereas average number of friends on facebook: 245
  • People add friends because: 82% know in real life, 60% mutual friends, 29% due to appearance and 11% for business networks
  • 250 million photos are uploaded daily and 35% of users tag themselves

Now this is even more interesting: Half of all users compare themselves to others when they view photos or status updates:

  • As people spend more time on Facebook, they start believing that others have a better life than they do (Did u ever felt that ….)
  • People with high levels of narcissism or low level of self-esteem spend more than an hour a day on Facebook
  • When people get frustrated by seeing others high success, they start feeling depressed and many a times quit facebook or stop going to facebook

What is Social Media Analytics?

Social Media Analytics refers to the study of the structured and unstructured data generated by the users of the social networking sites like facebook, twitter, LinkedIn etc. to make informed business decisions. The most common use of social media analytics is gauging customer opinion to support marketing and customer service activities. It is about to know what consumers are talking about a brand or product or services, it is about analyzing the new trends in consumer preferences and taking feedbacks to improve on brand image and service offerings. Social media provides valuable data for your business, along with a medium for conversation. These tools enable you to spot trends, opportunities and get insights, enabling you to act on some of those insights by participating in conversations that are going on and increasing your ROI.

What needs to be done?

Step 1: The first step in social media analytics is determining your purposes for social media involvement in the first place. Typical objectives include increasing revenues, reducing customer service costs, crowd sourcing, getting feedback on products and services, and improving public opinion of your company or products or a combination of above.

Step 2: Define Measurable and actionable KPIs: The second step is to define and identify KPIs or Key Performance Indicators (business metrics used to analyze or answer specific objectives or achieve goals). You could evaluate customer engagement, for example, through numbers of followers of your corporate Twitter account and numbers of retweets and mentions of your company name, or number of likes or mentions.

  • Define specific KPIs for each social network
  • Define actionable KPIs
  • Choose Metrics that translates into business context

Few examples of actionable KPIs are: Number of people in a specific location who follow your company on twitter or like your page on FB, Number of product improvement suggestions, percentage increase in product reviews, percentage reduction is support costs etc.

Step 3: Configure your analytics

  • Create a filter or segment for social traffic – Identify quickly which actions work and from which social network
  • Add event tracking for social media – Customize your landing pages for different users based on different promotions they are looking for. Directing user to correct landing page is big factor for your online campaign success.
  • Add tracking to measure interactions and event responses – Which buttons do visitors interact with? How much time they spend on landing page vs. other pages on site? What graphics make users click often and more on? Is that button doing what you expected? If not Change It!
  • Add Campaign tracking to URLs – Figure out what wording leads to more click-through and conversions.

Step 4: Use Other Social Analytics Tools: There are a number of types of tools for various functions in the social media analytics process. These tools include applications to identify the best social media sites to serve your purposes, applications to harvest the data, a storage product or service, and data analytics software. Social media tools crawl blogs and social network sites for brand mentions and enable companies to build communities and engage with their customers.

Some Free and Popular Social Analytics tools are:

Social Mention, WhoisTalking, Howsociable, Backtype, Trendistic, Thinkup and Tinker.com

Some effective Paid tools are:

Radian6, Sysomos, Alterian SM2, Ubervu, Raven, Hootsuite pro, peer index and Lithium

Step 5: Understand each Social Metric

Quantitative data: New Likes, Total Likes, Page views, Referrals, Profile data including followers, following, tweets and Daily tweet average, number of clicks, number of retweets, what times, which tweet structure gets a better CTR?

Qualitative data: User Profiles, user location, language, Comments (sentiment), Interaction times, Brand mentions, mention content

Step 6: Action and Strategy

Based on the analysis of data generated above you need to evaluate if you are achieving your goals? Keep on measuring, act differently and keep on experimenting to get even better results. Identify worst performing metrics one by one and devise an action plan.

The ROI of Social Media

Return on Investment is a business metric which measures the effectiveness of the social media marketing efforts. Measuring ROI of social media marketing vs. traditional marketing is very tricky and also very different concept than measuring ROI through traditional marketing efforts. Different people, strategists and marketers have defined the concept of social media differently. This is precisely because Social Media ROI includes various intangible benefits other than the one that can be measured. Measuring social media ROI is to go well beyond the simple metrics of number of followers or likes. It rather depends on the combination or all of below attributes:

  1. Attitude towards the brand: There are various studies done which shows the linkage of returns based on the attitude of users towards a brand, like buying a brand, or recommending the product to friends.
  2. Engagement:The more engaged your user or fan means stronger brand and greater ROI. ROI increase happens because of
    1. Consumers who share about brand are more likely to buy the product (based on cognitive consistency theory)
    2. When consumers engage with your brand, your message travels to wider audiences
    3. When folks engage your brand, it acts as an endorsement to their friends and we know recommendations by friends are more powerful than any commercial marketing campaign.

3. Customer Service: How a business handles complaints of negative remarks is going to be major differentiating factor in increasing ROI. Complaints travel faster than praises. So there needs to be a mechanism in place to address negative comments by companies.

Overall, social media marketing doesn’t translate directly into social media ROI, but it has an impact on overall ROI of business. Social media marketing is a communication plan, it can act as change agent, increased visibility and wider reach and it translates into revenues through various intangible means. The increase in ROI through social media needs to be managed by engaging with clients, tracking what clients and users are discussing on various platforms and forums and addressing customer complaints.

According to Forrester, identifying the value of social media marketing efforts comes down to looking at four factors:

1. Financial: Have costs decreased or sales increased?

2. Brand: Have perceptions of the brand improved?

3. Risk Management: Are you better prepared to respond to issues that affect brand reputation?

4. Digital: Has the brand enhanced its digital assets?

Disclaimer: Some or all of above facts and figures are compiled from different open source websites licensed under creative commons license and hence reproducible. This post contains various opinions and judgemental statements which are based on the research and studies done by me. However various facts and figures are sourced and compiled  from the research done by several institutions including but not limited to Forbes, Dreamgrow, Psychology degree, FB newsroom, Harvard.edu, comscore, pewinternet. Please use this information as per your discretion and I would not be responsible for any loss attributed due to actions taken by you based on information presented herewith.

 

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What is so special about the word ‘OM’?

While browsing net I just stumbled upon this question and a meaningful response by Chris Peter. Some how I had this question always at back of my mind to which I didnt' got practical and logical answer which could quench my avidity. The below explanation is by Chris Peter(some parts are though edited by me..), which I just felt to share.. So here it is:

Forget the philosophy, find out for yourself! Chant it correctly and you'll instantly understand why every religion in the world uses the word (yes, even Christianity). Even atheists would find OM interesting as the sound has a very clear, physiological effect on the body.

  1. First, know that OM is actually 3 sounds, Aaaaa, Uuuuu, and Mmmmm.
  2. Aaaaa is chanted with the mouth wide open. You don't need to intentionally focus on making the vowel sound. Just open wide and the Aaaaa comes out naturally, like opening your mouth for the doctor.
  3. Uuuuu is chanted by forming a circle with your mouth. Again, don't try to make a specific sound, just form the circle with your mouth and the sound happens naturally.
  4. Mmmmm is just that, making a sound with your mouth closed. Kinda like a bumblebee.
  5. Sit comfortably with your eyes closed. If your mind is super-chatty, try taking 10 deep breaths first. Then chant the 3 sounds, Aaaaa, Uuuuu, Mmmmm separately, with a silent pause in between. You should feel the Aaaaa vibrate in your belly, Uuuuu vibrate in your chest, and Mmmmm vibrate your head. Don't force the vibration, it happens naturally.
  6. Then combine the 3 sounds. Just start out with the mouth wide open, Aaaaa, and slowly close it to Uuuuu and finally completely closed to Mmmmm. One smooth, slow motion of your mouth from wide open to closed. You should feel a vibration start in your belly and move up your spine as your mouth closes.
  7. Repeat the sound 3 times and then notice how your environment sounds afterwards. Most people experience a distinct stillness in the air. Did you contact heaven or just settle your mind? Who knows? Who cares! It just works.

Most of the world's major religions have a slight variation on OM. In Christianity, it is AMen; in Islam it is AMin, and in Judaism it is ShalOM. Buddhism uses plain old OM.

 

LAGAAN – Management lessons from movie

This 15th August I was watching this movie called Lagaan, being telecasted on Set Max

Some inspirational management take aways from movie Lagaan

  • People with Sudden heartfelts should be tested before being part of same ship
  • Focused people as part of the team are very instrumental, they act as catalyst and help sails through difficult times
  • When required leader should not hesitate forming giving direct warnings
  • Your enemy can be the closet person to you. It’s duty of a leader to keep an eye on everyone, even to your closet allies. This however does not mean you need to doubt everyones integrity and intentions but just keep an eye.
  • Don’t underestimate anyone, sometimes the weakest looking person turns out to be the most strong team member (remember ” kachra”)

 

What is Big Data Analytics?

There is a lot of buzz around big data analytics. Infact, big data is termed as major growth engine and revenue driver for the outsourcing companies in coming years and more so every IT company in its latest quarterly performance release has spoken about their focus on Big Data and big data analytics..

So what is Big data?

Big data refers to the enormous amount of data generated on daily basis by individuals and firms through phones, internet, websites, intranet sites, social media and business transactions. According to IBM, 2.5 quintillion bytes of data are being created every day and industry expects 4300% increase in data generation by the year 2020. As per IBM report 2.7 Zetabytes of data exist in the digital universe today and 90% of which is generated in just last 2 years.

Opportunities in Big Data

Social, Mobile, Cloud and Big Data all play a role in this emerging era of engagement. In its simplest form, Big Data’s role is to better inform operations, drive more intelligence into our automated processes, inform interactions through context awareness, and optimize our outcomes. It will enable the inclusion of a broader base of data (both structured and unstructured), delivering more insight to decision processes and more intelligence to drive automation.

Big Data opportunities exists in both database software and hardware installation at the clients site. Since BIg Data analytics is applicable in all major Industries like Manufacturing, healthcare, Retail & Logistics, Social Media to name a few., the opportunity for IT services companies are mammoth and would definitely be the next revenue / growth drivers for these companies.

Companies’ worldwide are adopting technology and know-how to synthesize these data which help them to make better business decisions. The ever-increasing demand by the companies to unravel the gold mine gave rise to new branch of analytics called Big Data Analytics. Analytics or processing raw data into information help companies to explore hidden patterns and trends that can add value to their business. Many companies are seeking the assistance of service providers to analyze the huge data generated every day to make into useful information. Market research firm IDC expects that Big Data Analytics service market will reach $16.9 billion by 2015. As per another study by Wikibon big data will be a $50 billion business by 2017.

Challenges in Big Data Analytics:

Big data analytics is still in nascent stage and lit of firms like IBM, Oracle etc. are in foray providing host of software and hardware solutions to firms to capture their unstructured data and synthesise them to reveal patterns and as such meaningful insights which can deliver enhanced business meaning to it.  There are other challenges on front of skilled manpower to convert the raw data into information. In fact, they are short in supply. According to a recent report by McKinsey global Institute, US alone will face shortage of almost 200,000 data analysts by 2018 to synthesis the data into information relevant for decision-making.

The amount of data being generated is exceeding the supply of talent required to analyze the same. This gap between demand and supply will only widen in next few years.  The reasons are:

 Every fraction of second, new data is being generated and the demand for creating value from the data is increasing. It is estimated that every two years the size of existing data will be doubled. It is said that even though supply (talent) increases, demand (data) will increase at a faster pace.

 There will be demand for value creation from data from all the industries again adding on to the situation of demand increasing supply.

Case study on how Big data analytics helped a major firm in saving millions of dollar:

OPower said its software and big data tools will be able to help save one terawatt hour worth of energy — which is the equivalent to the energy consumed by 100,000 American homes per year — collectively from U.S. homes by the end of 2012. That’s worth a whopping $100 million in consumer’s utility savings. Opower’s algorithms collect and crunch utility energy consumption data, combine it with other large data sets, analyze it for behavior-changing tidbits, and package the results into a detailed utility bill that can help consumers save around 2 percent on their energy bills. Per person that might be small, but as a whole, the company, is making a real difference.

Decoding Index of Industrial Production

 

Index of Industrial Production is a very important economic indicator to gauge the industrial activity of an economy. It measures the status of production for the industrial sector of an economy in a given period of time, in comparison with a fixed reference point in the past. The base of IIP and the weights assigned to different sub-sectors with in are revised from time to time depending on the changes in the economic structure and to attach a meaning to the current dynamics . The current base is set to 2004-2005 and is revised from earlier base of 1993-94.

The IIP, numbers are released every month in India and generally seen as an important but short-term indicator of whether industrial activity in a country has risen or dipped. They are also regarded as the leading indicators for the estimation of the GDP of the country as they serve the basis of estimating how the growth in GDP would look like in coming quarters.

IIP numbers are divided and recorded under four main categories Basic goods (45.7% weight), Capital goods (8.8% weight), Intermediate goods (15.7% weight) and Consumer goods (29.8% weight). Consumer goods is further breaked down into Durables (8.5% weight of total index) and Non-durables (21.3% of total index weight). In India, IIP covers areas in mining, manufacturing and electricity, however as per UN statistics it should also include some other areas like Constructions, energy, gas etc.

Since, industrial activity contributes about a quarter of our GDP, this indicator is keenly followed by economists, markets and policymakers. A higher growth in industrial activity, reflected by movement in the index, will naturally lead to better growth for overall GDP. Neverthless, to say this further reflects on the sentiments of the stock markets and leads to changes in stock values depending on how IIP fairs. A continual contraction of IIP index will also put pressure on the RBI to relook its monetary policy, as in days of contraction, it will come out to possibly ease the interest rates to boost the GDP.

 

Health check of economy-Key Indicators

The recent economic turmoil in global economy in general and Euro crisis in particular, have led me to look in detail various economic indicators that can help understand where we are standing and where we are heading. This curiosity has helped me delve little deeper and list down various leading and lagging economic indicators, the study and tracking of which can help us understand better the economic world around.

What are economic indicators? Wikipedia says: An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles.

Well theoretically, all indicators are divided as leading and lagging indicators, but various studies by eminent economists and the recent turmoil’s in global markets and failure of predictions by US Fed Chairman Ben Benarke have raised doubts over the efficacy of leading indicators. The gist, according to economist Pedro Amaral, is that most of the leading indicators don’t actually turn much in advance of a GDP downturn, and don’t have a ton of value. So, without going into much details of leading and lagging indicators, I am here by listing few of the very important economic indicators, track of which can help us manage our lives more better…

  •  IIP or Index of Industrial Production, in some countries it is published by name of PMI (Purchasing Managers Index) – Look for trends in growth of major segments like manufacturing, mining, electricity etc. Look out separately for trends in Capital goods index, intermediate goods and consumer durable and non durable
  • Stock Market Indices are good leading indicators as they reflect what general market is expecting in future of the state of economy and business. Look for stock market returns, volatility and outlook
  • GDP or Gross Domestic Product. Look for real GDP growth rates. Previous trend plus future outlook (forecasts)
  • Business Confidence Index
  • Growth in Infrastructure
  • Wholesale Price Index (WPI) – reflects inflation in economy, constitute of food articles, primary articles, all commodities.
  • GDP Deflator – ratio of nominal GDP to Real GDP
  • Fiscal Balance as % of GDP
  • Balance of Payment – Exports (% growth) – Imports (% growth), further dive into capital account and current account status and trends.
  • External Debt as % of GDP – look for ratios like Public Sector debt as % of GDP and Credit to GDP ratios
  • Consumer Confidence Index as well consumer spending trends
  • Residential Property Sales
  • Unemployment rate – look for unit labor cost, percentage change over previous periods, change in total labor force
  • Money supply – changes in narrow money and Broad money over previous periods
  • Bond yield curves – 3 month interest rates vs. 10 year govt. bonds
  • Income and wages trends in economy

Why Should Insurance firm Invest in Private Equity?

Key Points:

  • Investment strategy and strategic asset allocation for Insurance Company largely depends on the cash flow requirements to meet expected future claims
  • The basic principles of strategic asset allocation for an Insurance firm need to intelligently balance the long-term investment returns and cash flow requirement to meet claims in near future
  • The cash flow requirements and hence investment objective differs for the life insurance business, property & casualty business and health insurance business, this demands to adopt different approaches for asset allocation in private equity by an Insurance firm
  • Asset allocation to private equity can help Insurance companies generate long-term superior risk-adjusted returns than compared to traditional investment avenues
  • A lower correlation of Private equity with other traditional investments can help generate a good diversification strategy for Insurance investments
  • A portfolio mix of small to medium buyouts, secondaries, mezzanine and distressed debt can help mitigate the J-curve effect and generate cash flows in relatively shorter period
  • Different restrictive regulations like Solvency II, Basel III, external ratings, internal risk capital requirements and other local country laws restrict investment in PEs by Insurance firms

Background & Introduction

An Insurance company can be classified on the basis of nature of the insurance business it falls in, which can be either life insurance, Property and Casualty (P&C) or Health insurance business. The cash flow requirements to meet their future expected claims varies depending upon what business segment they are catering to, and hence their investment objectives and strategies.

An assortment of United States coins, includin...

An assortment of United States coins, including quarters, dimes, nickels and pennies. (Photo credit: Wikipedia)

 A typical insurance company is been investing with certain overall strategies in mind, such as matching assets to liabilities in terms of maturity and interest rate risk, including managing duration; liquidity requirements; and overall risk appetite/volatility tolerance.

In addition, in order to stay competitive compared to its peers, an insurance company must also achieve a satisfying return on its investments. Furthermore, these returns should not vary too much from year to year since both policyholders and shareholders prefer stable and predictable investment profits and returns. All these requirements mean that insurance companies have to constantly look for ways to  improve  the  risk-return  profile  of  their  investment  portfolios,  which  becomes  particularly important in a volatile interest rate environment.

The risk return profile can be managed by strategic asset allocation across four major assets classes: Fixed Income, Stocks, Real Estate and Alternative Vehicles. The portfolio mix of the insurance companies varies over time and is based on certain macroeconomic and industry specific factors, also taking into account the general state of the global economy, industry trends, market and political events.

Historical Asset Allocation Snapshot

Looking at the historical asset allocation mix, in year 2010 the majority of insurance companies’ investments were in bonds or 73.2% of total cash and invested assets (Bonds include categories such as corporate debt, municipal bonds, structured securities, U.S. government bonds and foreign government bonds), this followed by investment in common stock (10.3% of total assets), Mortgages, First Liens and Real Estate (7.1%), Cash and Short Investments(4.3%), Others(3.86%) and the remaining 1.24% in private equity and hedge fund. The private equity and hedge fund investment taken together accounted for $61.6 billion (or 1.24%) of the total invested capital by insurance companies[1].

Asset Allocation of Insurance Industry in 2010

 

The inclusion of private equity in an insurance company’s asset allocation demands different approaches for different product segments ((i.e. Life, Property & Causality, Health etc.). As of year-end 2010 Life companies accounted for the majority of industry Private Equity Investment in terms of book adjusted carrying value, at 71.9%[2]. Property/casualty companies represented the second-largest, at 23.6%. Life insurance companies do more to integrate the asset and liability sides of the balance sheet than other financial institutions. Longer time horizon products require asset/liability management risks to be managed on an ongoing basis

As per recent survey by Preqin the Insurance companies represent one of the largest investor types by total assets under management, managing an aggregate $16.2 of which close to 2.7% is allocated for investment in PE. This is indicative of the relatively low-risk investment approach that insurance companies take in order to maintain the necessary levels of liquidity required as a result of the variable nature of their liability payments.

Insurance investment in PE

Private equity funds and hedge funds are generally illiquid with significant restrictions on transferability. In addition, private equity funds can only distribute cash when the underlying illiquid investment can be sold. Private Equity Investment by insurance companies increases when the need to hold cash and liquid securities is overshadowed by the need for stronger returns. Currently 322 of the 4,455 U.S. insurance companies are active in the private equity asset class[3]. The insurers’ $61.6 billion investment in 2010 is compared with estimates of total private equity and hedge funds’ capital of approximately $4 trillion[4].

Issues faced by insurance companies in investing private equity

  • Liquidity requirement: Insurance companies typically seek out investments as part of their overall investment strategies which can provide them with significant current income streams and require the ability to opt out of investments they wish to avoid. The liquidity requirement varies across different business segments; Life companies have a lesser cash requirement to meet the claim as compared to P&C companies.
  • Risk Appetite: Risk appetite of insurance companies is different from other institution such as pension funds and endowments. Having a different risk appetite endowments and pension funds invest heavily in private equity.
  • Negative J-Curve: Capital outflows to fund investments during the commitment period, combined with fund organizational expenses, due diligence expenses, transaction fees, management fees and other costs borne by investors, produces what is termed as the “J-Curve” effect of private equity, leaving investors with initial negative returns. Insurance companies with current income needs in particular, mitigating the “J-Curve” can be of significant importance.
  • Regulations: A recent survey conducted by Preqin shows that 79 %[5] of the insurance companies have not changed their level of exposure to the asset class as a result of new restrictive regulations. But a number of investors believe that they may be affected in future as result of impending Solvency II regulation.

How Private Equity Investment can help to improve risk-return profile.

Investment of insurance companies in private equity funds help in obtain higher returns, increase diversification (there by reducing risk), and increased access to emerging asset classes. These investments fit within an overall framework of asset-liability management that balances risk and return while providing for the overall liquidity needs of the insurer. The long-term nature of insurers’ liabilities, especially compared to those of banks and broker-dealers, lends itself ideally to longer-dated or illiquid investments such as private equity and hedge funds. Detailed reporting and valuation guidelines provide state insurance regulators the necessary tools to examine these investments for appropriateness at a given insurer.

Other benefit of investing in private equity over the traditional asset classes can be illustrated as follows:

Higher Returns:  Private equity investments generate higher returns in the long run as compared to other asset class. The US State pension funds 10 year asset class returns for 69 funds for the fiscal year ending June 30, 2011 shows that the private equity has outperformed the other asset classes.

                              10th to 90th Percentile Distribution of State Fund Returns

Source: NACUBO (“National Association of College and University Business Officers”)

The capacity to earn excess returns in traditional asset classes has been a challenge for many years. The excess returns for 10 years ending June 30, 2011 is shown in the chart below:

Distribution of Excess Return for 10 Years ending June 30, 2011[6]

 

  • Unfunded Commitments One important aspect unique to private equity investing is unfunded commitment. When investors subscribe to a private equity fund, their commitment is typically not fully or immediately paid-in; instead, capital is “called” or “drawn-down” over time as investment opportunities arise. This unfunded capital can be invested in short term liquid securities which can generate additional nominal returns.

  • Tax Benefits:  There is no established research available on this, but the way limited partnerships are structured and the tax-heaven geographies where these are registered are can provide various tax benefits in long run which adds upon to the expected return from investment.

Solution to the problem faced by the Insurance companies

The problem of negative J-curve and the current income requirement faced by the insurance companies while investing in private equity funds can be mitigated by inclusion of secondary/seasoned investments along with the primary investments.

Secondaries/ seasoned primaries can help smooth the “J-Curve” effect and provide for earlier draw downs of capital and earlier returns of capital.  In addition, secondaries/ seasoned primaries offer more asset visibility (i.e., is not investing in a blind pool of assets) and reduced manager risk and have the ability to achieve additional vintage year diversification in a shorter commitment period.

Second method to mitigate the “J-Curve” effect for investors is the inclusion of mezzanine and distressed debt funds in client portfolios.  The current income paid out by mezzanine funds and the relatively shorter holding periods exhibited by distressed debt funds relative to buyout investments, both help to mitigate an overall portfolio’s “J-Curve”. Distressed debt funds exhibit return profiles similar to those of buyout funds, but tend to provide investors with unique diversification benefits during downturns in the economic cycle.

Third method to mitigate the “J-Curve” effect on client portfolios is the inclusion of direct co-investments. Co-investments enable investors to put capital to work quickly and have historically tended to return capital within a few years of making the investment, thus serving to further mitigate the “J-Curve”.  Additional benefits of co-investments include:

  • Co-investments enable investors to capitalize on their relationships with premier private equity funds to generate high-quality deal flow;
    • Co-investments allow investors to invest alongside private equity investors who have deep domain expertise;
    • Co-investments provide investors with the ability to closely manage a portfolio by determining the investment pace and portfolio composition on a portfolio company level; and
    • Co-investments allow investors to invest in selective high quality deals at substantially reduced fees thereby potentially enhancing the overall portfolio returns.

Overall, Insurance industry is working in very tight regulatory regime and the very nature of their business demands a lot of money to be kept in near liquid investments. However, a multi-step strategic asset allocation and a small percentage of the total asset investment in alternatives viz., private equity can help these companies generate higher risk-adjusted returns, reduced risk through diversification and access to additional and emerging markets. Further, from private equity offering perspective a multi-layered portfolio mix spreading out to two-three vintage years  topped with secondaries and mezzanine investment can help mitigate the “J-curve” effect and can address the liquidity requirements in mid to long term. Private equity investing is a long-term engagement, which promises strong returns with a favorable risk-return relationship.


[1] Source: NAIC Capital Market Special Report-Analysis of Insurance Industry Investment Portfolio Asset Mixes

[2] Source: NAIC Capital Market Special Report-Schedule BA – Private Equity and Hedge Funds

[3] Source: Preqin Special Report: Insurance Companies Investing in Private Equity

[4] Source: NAIC Capital Market Special Report-Schedule BA – Private Equity and Hedge Funds

[5] Source: Preqin Special Report: Insurance Companies Investing in Private Equity

[6] Source: Cliffwater LLC-Trends in State Pension Asset Allocation and Performance

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