Hedge Fund Woes Hit AIG As It Reports A Loss

AIG

AIG has started cutting it’s investments in hedge funds as volatile markets have dampened returns.

The American International Group Inc. reported profits which were lower than investors expected from its third quarter report coming from lower investment income due to poor hedge fund returns, sparking calls to increase performance.

On Monday, the biggest commercial insurer in the U.S. suffered a 3.3 percent fall.

Hedge funds have been susceptible to market volatility in the past year where AIG has been reducing its investments.

Large hedge funds, once favored by the rich and pension funds because of their record for better-than-average returns have recently been posting worse than expected returns and poor starts to the year in the first quarter of 2016.

Regulators are currently worried about firms considered “too big to fail” and have their sights on possibly increasing capital set aside for these companies in the wake of AIG’s poor results.

AIG nearly collapsed in 2008 and was put into the Federal Reserve’s list of “systemically important financial institutions” (SIFIs) after the U.S. government bailed it out for $182 billion.

According to AIG Chief Executive Peter Hancock the company can seek exemption from the government’s list after a judge ruling that MetLife Inc was not “too big to fail.”

AIG will hold its post-earnings call on Tuesday where investors will wait for an update on the company’s position.

Activist investor, Carl Icahn, has been calling for AIG to be split into three independent companies.

Icahn successfully added two members that he nominated last February to the board next week, namely John Paulson, a billionaire investor, and Icahn Capital LP’s Managing Director Samuel Merksamer.

AIG’s operating profit fell to $773 million down 54 percent in the first quarter after restructuring that cost $122 million.

According to Thomson Reuters, AIG increased its earnings per-share by 65 cents, much lower than the average estimate of $1.

Commercial property and casualty insurance businesses of AIG fell to $720 million, 38.5 percent lower. The business unit’s investment income was down 44 percent bringing them to $577 million.

AIG shares have gone down by 9 percent this year.

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