US pensions still favour private debt
Despite perceived headwinds, including the denominator effect and a rising interest rate environment, nothing appears to have dampened the ardour of US public pensions for private credit.

Research from rating agency KBRA reveals that, over the last few years, a subset of US public pension plans representing a combined $3.2 trillion in assets under management increased their private debt allocations to an asset-weighted average of 3.6 percent in 2022 compared with 2.1 percent five years earlier.

Among the leading state defined benefit pension plans, allocations to alternatives have risen from 10 percent of total assets in 2006 to 21 percent in 2011 and 33 percent at the end of June 2021. Private debt represents 2.8 percent of total state pension assets and an average 6.7 percent of total assets among state pensions with dedicated allocations.

KBRA points out that the shift to private debt is driven by higher yields than the traditional fixed-income investments of pension fund portfolios such as publicly traded US government debt and taxable investment-grade corporate debt.

However, it does also acknowledge that rising interest rates “can negatively impact companies’ cashflow” and cautions that the “inherently less liquid” nature of private credit should be factored into allocation decisions.

Strategic partnership for Fortress and Nassau
Nassau Financial Group and Fortress Investment Group have entered into an investment management agreement, whereby Nassau’s insurance subsidiaries have full access to Fortress’s credit strategies.

As part of a broader strategic partnership, Fortress has given Nassau a $130 million minority non-voting common equity interest in exchange for a 7.7 percent stake in Nassau. Nassau will begin investing alongside Fortress’s credit funds, targeting both direct lending and asset-backed securities investing opportunities.

Nassau, based in Hartford, Connecticut, is a financial services company with $23 billion in assets under management in insurance, reinsurance and asset management. Fortress, a New York-headquartered investment manager, had $44.7 billion AUM as of 30 June 2023.

Fortress managing partner Jack Neumark, co-head of global specialty finance, said: “We believe our deep experience across the credit spectrum is extremely well aligned with Nassau’s portfolio and investment objectives, and we very much look forward to contributing to Nassau’s continued growth and success.”

Nassau was founded in 2015 with an initial capital commitment, and subsequent growth capital, from Golden Gate Capital, which remains Nassau’s majority controlling shareholder. Golden Gate is a San Francisco-based private equity firm with more than $19 billion in cumulative committed capital.

Prudential, Warburg launch reinsurance platform
Prudential Financial and Warburg Pincus have jointly announced the launch of a new Bermuda-based life and annuity reinsurance company, Prismic Life.

Prudential will reinsure to Prismic a block of structured settlement annuity contracts with reserves of approximately $10 billion, subject to required regulatory approvals.

Prudential will continue to administer the contracts, and its obligations to the holders of the annuities remains unchanged.

Prudential, Warburg Pincus and a group of global investors have agreed to make a combined initial equity investment in Prismic of $1 billion. Prudential will own 20 percent of the new company and Warburg Pincus 15 percent. Prismic’s board will include one director nominated by Prudential, one by Warburg Pincus, one by the group of investors, and two independent directors.

The statement announcing Prismic’s launch quoted Prudential Financial’s chief executive, Charles Lowrey, as follows: “This unique reinsurance platform will play an important role in our vision to be a global leader in expanding access to investing, insurance, and retirement security for people around the world.” He expects the reinsurance relationship between Prudential and Prismic will grow in the years to come.

Both Prudential and Warburg Pincus will provide asset management services to the new platform.

Amy Kessler, who was the first leader of Prudential’s international reinsurance business, will serve as Prismic’s CEO. Nandini Mongia, president of Prudential’s open architecture solutions, will represent Prudential on Prismic’s board.

A call to LPs
Our LP Perspectives 2024 survey is now live, and we would greatly appreciate your participation as we seek to understand investor sentiment today in the private markets. Here’s the survey link.

Some pointers on this year’s survey:

LP Perspectives is PEI Group’s annual study of institutional investors’ approach to private markets asset classes over the coming year. The survey gathers insight on investors’ asset allocations, propensity to invest, performance predictions and views on the wider market.

The results will be published across all our titles.

Respondents will receive the reults of the asset class of their choice as a thank you for completing the survey. PEI Group will also donate $5 to UNICEF for each completed response.

The survey takes no longer than 10 minutes to complete, and all submissions will remain anonymous.

The deadline for submissions is Friday 6 October.

Essentials