New York Life Insurance Company is getting into residential mortgage loans as part of a plan to grow its $380 billion portfolio by prudently adding complementary asset classes to the general account.

“Residential mortgage loans are one area where we have been selectively building exposure,” Craig Sabal, chief investment officer for the mutual life insurer, told Institutional Investor. He expects the New York-based mutual’s resi mortgage exposure to become a bigger part of the portfolio over time.

Though public fixed income makes up the bulk of New York Life’s portfolio — 90 percent is in investment-grade fixed income — Sabal and his team invest 5 percent of assets in equities and 5 percent in private fixed income, including commercial mortgage loans, private placements, and asset-based finance (a.k.a. structured credit, which includes collateralized loan obligations, asset-backed securities, and residential mortgage backed securities). Under Sabal, who was deputy CIO before taking the role in January after Tony Malloy retired, the insurer’s investment office regularly considers whether to add new asset classes that can boost returns. 

“Given our size and scale, if we don’t expand the opportunity set, we’re going to keep going into the same asset classes, and forced into similar sectors and similar issuers,” the Allocators’ Choice Award finalist explained. 

When assessing a new asset class, Sabal’s team considers its risk-adjusted return potential, diversification benefits, capital efficiency, and how it fits within its asset-liability profile. They also consider whether specialized underwriting, structuring, or origination capabilities are needed and if those capabilities provide a sustainable advantage.

When the portfolio is stress-tested, the team considers which complementary assets to include to meet their policyholders and business operating needs from a risk and policy standpoint. “Liquidity is the most important thing,” Sabal said. “We need to have enough liquidity to meet any need at any time.” 

In addition, the investment team has to make sure they’re keeping up with growth from an origination standpoint. 

“We are extremely purposeful in our portfolio construction and asset allocation,” he said. “We’ll go through process of identifying what the constraints we may have and how we meet those needs.”

All told, Sabal and his team are looking to deploy a total of $55 billion in capital over the course of this year, more than twice the $25 billion allocated annually when Sabal joined the mutual six years ago.

Since taking on the role, Sabal has been focused on being dynamic with portfolio management. “We don’t want to just set it and forget it. We have an abundance of capital but it’s not unlimited,” he said.