Asset AllocationMay 3, 2016

AIG Dropping Half Its Hedge Fund Portfolio

The $343 billion insurance fund has so far submitted notices of redemption for $4.1 billion.

Reported by Featured Author

AIG is pulling $4.1 billion from its hedge fund portfolio as part of a move to significantly downsize its exposures to the investment vehicle.

In a conference call discussing first quarter results on Tuesday, Chief Financial Officer Sid Sankaran said AIG planned to cut its $11 billion hedge fund allocation in half by 2017.

The divestment is in part due to poor performance, as AIG’s hedge fund portfolio has suffered losses over the last three quarters, contributing to a net earnings loss for the insurer in each period, according to the firm’s financial statements.

Activist investor Carl Icahn, who owns a large stake in AIG, accused the insurer in October of “severely” underperforming its peers.

In a February conference call, CEO Peter Hancock said he believed reducing the hedge fund allocation would lead to “greater risk-adjusted returns.”

So far the $343 billion insurance fund has submitted notices of redemption for $4.1 billion from undisclosed hedge funds, and received $1.2 billion back. Its hedge fund investments fell over the quarter from $11 billion to $10.1 billion.

The funds currently allocated to hedge funds will be shifted primarily into commercial-mortgage loans and investment-grade bonds, Sankaran said. AIG also appointed fixed-income veteran Douglas Dachille as CIO in July.

“Doug is a leader in financial services and investments, and has an extensive track record in all aspects of asset management, structured finance, and risk management at global companies,” Hancock said in a statement at the time.