The insurance ‘lump sum’ is priceless for managers

The last year has seen an increasing number of partnerships formed between GPs and insurance firms. There are compelling reasons behind the trend.

As we note in an upcoming cover story, to be published in our June 2021 issue, ‘permanent capital’ has a very reassuring ring to it. For fund managers reminded by the pandemic of the vicissitudes of the fundraising cycle, having access to a stable and reliable source of long-term capital is a privileged thing indeed.

It helps to explain why alternative asset managers, including those with large private debt operations, have been scouring the insurance universe for partnerships and takeover deals. In the last year alone, we have counted six significant transactions bringing together asset managers and insurers. They include Apollo Global Management’s agreement to purchase its affiliate Athene in an $11 billion deal; Adams Street Partners’ formation of a $2 billion strategic partnership with American Equity Investment Life Insurance; and Blackstone Group’s purchase of Allstate’s life insurance business for $2.8 billion.

As one debt advisory source told us: “Fundraising costs money and requires negotiation with investors. It’s a lot more efficient for asset managers to have a close relationship that can provide a lump sum.”

Just as fund managers are drawn to stable sources of capital, insurers are lured by the prospect of a stable, long-term source of yield from credit investments. One misconception is that they are recent converts to the merits of asset manager partnerships. This is far from the case, with the likes of Metropolitan Life and Prudential having been active in this context as far back as the 1980s. What has arguably changed is the degree of urgency, with today’s extremely low interest rate environment driving insurers outside the clutches of the fixed income world in search of better returns as they seek to meet their long-term liabilities.

As time has passed, insurers have become both more demanding and more adventurous in terms of how they engage with private debt, and our cover story discovers that there are numerous different entry points. Given the regulatory demands on insurers, providing these bespoke arrangements is not entirely straightforward. However, the prize of permanent capital is not one to be passed up.

Don’t forget to look out for our June 2021 edition to find out more.

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