American International Group Inc. is increasing direct investment in real estate to reduce its reliance on Wall Street as record-low interest rates pressure investment income.
Its making sure that we are taking control of the risks were going to put on our books, and we cant rely on the public markets, including commercial mortgage-backed securities, Chief Executive Officer Robert Benmosche said at a conference this week in Chicago. We have to do direct investment.
The insurer boosted real estate bets this year by buying back mortgage bonds assumed by the Federal Reserve Bank of New York in the insurers 2008 bailout. Benmosche, the CEO since 2009, is increasing direct lending, investments in rental properties and home loans, he said Oct. 29 at trade group Limras annual conference. New York-based AIG was rescued after mortgage-related losses and is working to attract private capital to replace the governments remaining 16 percent stake.
AIG needs to deploy about $50 billion into assets such as real estate that can generate more alpha, an above-market return earned by the skill of its money managers, said Benmosche.
The insurer, scheduled to report third-quarter results today, is seeking ways to generate yield as the Federal Reserve keeps interest rates near record lows to stoke growth in the worlds largest economy. Thats driven down rates on debt from Treasuries to high-yield corporate bonds and raised investor concern that underwriting standards in some markets including CMBS are slipping.
CMBS Yield
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