PE/PC-backed Insurance Asset Managers - any thought on where they are heading towards?
There has been a trend of acquisition by PE and PC firms of insurance investment businesses and their aggressive expansion into the insurance world. Being able to tap money from insurers' balance sheet makes a lot of sense for these firms, but I am wondering how the dynamics will play out in the next 3-10 yrs, even longer.
Guess my key questions are: Are insurance firms more willing to outsource both their liquid (bond, public securitized) and illiquid (PC & PE investments) to outside shops like BlackRock & GSAM on the public side, and PE firms (Blackstone/KKR/Apollo/Ares/etc.)? In that case, I guess there will be less investment functions left inside of insurance firms. But also I am noticing some insurance firms hiring for internal investment capabilities, especially private side, like PGIM, LibertyMutual, etc. What are these in-house investment teams at insurance firms' competitive advantages compared to external managers mentioned above? Will the HOT insurance solutions business be gone across years? Just hard for me to digest the contradictory evidence... any one with some thoughts?
Every firm has its own strategy, on both the asset manager and insurance side. For example, Apollo bought and merged with Athene, while Blackstone prefers to keep insurance companies at arm’s length. Same for insurance companies. You have guardian who basically outsourced to HPS for private credit, while also having a PGIM or Barings that are beefy asset managers themselves. I suspect it’s a unique situation for each insurance company. Additionally, just because an insurance company isn’t owned or isn’t outsourcing to an asset manager doesn’t mean they aren’t working with that manager. Insurance asset management is becoming heavily weighted towards more fund finance transactions, with alt managers like Apollo or Blackstone becoming very skilled at creating IG-rated products that 3rd party investors like insurance companies can invest in. So it’s not as black and white, there’s a lot of gray area between full cooperation with alt managers and fully distinct insurance investment teams. Either way this is a long term tailwind for alt managers, because insurance companies have vastly deep pockets, and after getting a taste of the yield alt managers can provide compared to public solutions, they’re not going back to their traditional investment allocations.
By tastier / higher yield, do you mean moving away from fixed income to more higher yielding PC?
Correct. Why allocate to public fixed income that has a 6% coupon and a AA rating when you can allocate to SOFR+350 bonds issued by a private credit CLO that has the same credit rating? Is this all financial engineering? Is it gonna create the next 2008? Who knows? But the insurance companies love it
That's helpful color. Career-wise, do you think there's good amoung of upside with managing insurance capital though? I assume these ppl have to really understand all the insurance regulations and specifics with portfolios, not gonna be the typical deal ppl.
For context, I work at an insurance company subsidiary (PGIM/Barings kind of shop) and I think it’s been pretty good so far. Sure I need to have an awareness of how the insurance industry works, but investing is still investing at the end of the day. I’ve never really seen people struggle to lateral to other similar shops or to more aggressive strategies at MF/UMMs, and plenty of people in my group joined from top banks/sponsors as well. Great WLB too, I’m probably averaging 50-60 hour weeks, sometimes a couple of hours on a Saturday.
To add to that, these shops have separate portfolio management and investment teams. The PM team deals with portfolio requirements and restrictions and all that, so I don’t really deal with all the insurance regulation side of things, I just underwrite deals. I work in private credit.
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