For smaller insurers and the managers serving them, middle-market real assets remain one of the least accessible parts of the alternatives market.
Clearwater Analytics published an analysis of alternatives allocations across nearly 400 insurers representing $4.4T in AUM. The median insurer now holds 10% in alts, up from 5% in 2018.
What’s more interesting though, is that some carriers are heavy into alts, while others have almost no exposure. And the gap between them is wide and growing.
Look at the typical $500M to $5B insurer. A 2-to-4-person investment team. That team manages the fixed income book, works alongside actuaries on liability matching and cash-flow testing, and manages liquidity. They’re typically not sourcing new alternative strategies. The capacity just isn’t there.
That’s why these insurers work with an external manager. Sometimes an RIA, sometimes an OCIO like Mercer or Callan, sometimes an insurance asset specialist like Conning or NEAM. The external manager evaluates funds, allocates capital, and monitors positions. They pull from institutional-quality options: Blackstone, Apollo, KKR, and build a competent alts program. It works for private credit, large-cap PE, broad real estate.
It stops working in middle-market real assets.
No standard platform thematically writes $3M to $7M equity checks into storage, medical office, senior housing, industrial, multifamily and other real assets. The check sizes are too small for the mega-platforms. The operators are too fragmented for the standard selection process. Sourcing this sleeve continuously is a different business from allocating to funds. You maintain relationships with operators, see deals, underwrite at the property level. It’s resource-intensive for any platform. Even large institutional platforms typically aren’t built to source and continuously underwrite this part of the market.
A handful of niche platforms have built the infrastructure. And the demand is growing.
Diversifying without giving up income
Hard assets produce contractual income. They’re collateralized by something with replacement cost. And their returns move with operating fundamentals like rents and occupancy, not with the credit cycle that already drives the fixed-income book. For a smaller insurer whose general account is already heavy with IG credit, adding private credit from a standard alts program doesn’t create diversification. It creates more credit. Real asset equity is different. It diversifies the general account without giving up contractual income.
Why it has to be a continuous program
There’s one more thing that makes this strategy different operationally. It compounds. Operator relationships in these niches take years to build. Pass on enough deals and the operator stops calling. A few more and the flywheel slows to a stop. Middle-market real assets are either a continuous program or an afterthought. You can’t spin it up on demand. The infrastructure needs to already exist when the conversation starts.
So here’s the question worth asking, from either seat.
If you’re an RIA, OCIO, or asset manager serving smaller insurers, ask yourself which alt products can access middle-market real assets. If nothing comes to mind, it’s because for a long time there weren’t many. That’s changing.
If you’re a smaller insurer and your alts allocation sits below the median, here’s a useful question to bring to your external manager. When looking to actually diversify your fixed-income book, what’s the platform you’d evaluate?
The data already shows a bifurcation. Some insurers have started building this sleeve. Many haven’t.
The interesting question isn’t whether alternatives keep growing.
It’s whether smaller insurers gain access to the part of the market that can actually diversify the balance sheet, and who helps them get there.