Loan Note: US pensions undeterred from private debt commitments; Nassau, Fortress team up

Investors have had their allocation challenges of late, but US pensions are still prepared to put their faith in private credit. Plus: Fortress and Nassau strike an investment agreement; and Prudential and Warburg launch a new strategic initiative. Here’s today’s brief for our valued subscribers only.

They said it

“The deepening property crisis in China has investors worried about the risk of spillover impact to the broader global economy”

From the latest Market Update published by fund manager Monroe Capital.

First look

On the up: US pensions are continuing to get behind private debt (Source: Getty)

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.


Eaton Partners hires Adrian Siew from Credit Suisse
Eaton Partners, the placement agent and fund advisory firm led by Jeffrey Eaton and Thomas Kreitler, has hired Adrian Siew as a managing director in its private capital advisory business.

Siew comes from Credit Suisse, where he worked in its private funds group, capital partners, for nearly two years. At Credit Suisse, Siew provided strategic advice to financial sponsors and private markets investors on GP-led secondaries transactions.

He will be responsible for co-heading private capital advisory, GP solutions, with Dirk Jonske, also a new arrival to Eaton.

Eaton, a subsidiary of mid-market investment bank Stifel, newly branded its private capital advisory business. It offers four specialties: GP solutions, LP solutions, direct equity, and GP stakes. Stifel, including Eaton, has advised and executed on more than $2.5 billion worth of secondaries transactions over the last three years.

Since its founding in 1983, Eaton has raised more than $140 billion for around 185 alternative investment funds and offerings.

Latest fund close for Stonehage
Stonehage Fleming, the UK-based multifamily office, last week announced the final close of its Stonehage Fleming Global Private Capital Fund 2023 on more than $130 million.

The fund is the latest in a series of annual funds for Stonehage Fleming’s private capital programme. Each annual fund invests in six to eight managers that will provide underlying exposure to between 70 and 120 portfolio companies.

The Private Capital Annual Vintage Programme seeks to offer clients access to top-performing segments of the market through a concentrated portfolio, together with accelerated deployment of capital and minimal administrative burden for investors.

By deploying 50 percent of the fund at inception, the programme aims to capture the benefits of private markets from day one.

Stonehage Fleming has committed a total of more than $1.5 billion to private capital markets since 2001. The 2023 fund will continue the team’s primary investment strategy of focusing on small and mid-market segments globally.

LP watch

Institution: Ohio Police & Fire Pension Fund
Headquarters: Columbus, US
AUM: $17.2 billion
Allocation to private debt: 3%

Ohio Police & Fire Pension Fund announced a $50 million commitment to Barings North American Private Loan Fund III during its August investment committee meeting.

The fund offers direct lending within the central US mid-market and primarily targets loans for private companies, many of which have private equity backing.

For 2023, OP&F’s private credit plan has set a target allocation of $235 million-$285 million. The Barings investment represents its first commitment of the year towards this goal.

Currently, OP&F’s private credit portfolio is valued at $531 million, accounting for 3.0 percent of its overall portfolio. The goal is to increase this allocation to reach a target of 3.5 percent.

Today’s letter was prepared by Andy Thomson, with John Bakie, Christopher Faille and Robin Blumenthal contributing