KKR Buys Insurer to Build Up Asset Pool -- WSJ
09 Juli 2020 - 9:02AM
Dow Jones News
By Miriam Gottfried and Dave Sebastian
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 9, 2020).
KKR & Co. agreed to buy the retirement and life-insurance
company Global Atlantic Financial Group Ltd. for more than $4.4
billion, in a deal that would boost the private-equity firm's
assets under management by more than one-third and help it dig
deeper into a market rivals have been mining aggressively.
KKR, which already manages $26 billion in assets on behalf of
insurance companies, plans to take over management of roughly $70
billion of Global Atlantic's assets. KKR's total assets under
management would climb to $279 billion from $207 billion as of
March 31, with the percentage of the firm's assets that are deemed
permanent capital -- money that is particularly prized by
private-equity firms because it doesn't need to be regularly
replenished -- rising to 33% from 9%.
In buying a large chunk of insurance assets, KKR is following
the path of rivals Apollo Global Management Inc. and Blackstone
Group Inc. When the firms take over management of the assets, they
help insurers in their aim to earn more money than they have to pay
out to policyholders, a task that has become more difficult in an
era of low interest rates.
Estimates put the assets of the global insurance industry at
more than $30 trillion, KKR Co-President Scott Nuttall said on an
investor conference call Wednesday. "It's an enormous market and in
this low-rate world, we've been finding that insurance companies
are looking for alternative investments within their
portfolios."
Investors cheered the news, with KKR's shares up roughly 8% in
midday trading.
Apollo, the original architect of the strategy, joined with
former American International Group Inc. executive James Belardi in
2009 to build what would become Athene Holding Ltd. Financed by an
investment from a publicly traded vehicle Apollo controlled, Athene
bought up fixed-annuity assets on the cheap in the aftermath of the
financial crisis and signed them over to the buyout firm to
manage.
Apollo now manages $140 billion of assets on behalf of Athene
and Athora Holding Ltd., a European insurance company it founded in
2014. That accounted for 44% of Apollo's total assets at the end of
March and contributed the bulk of the $190 million in fee-related
revenue the firm received from permanent-capital vehicles in the
first quarter.
Apollo's credit business has ballooned as a result of the
strategy, becoming the envy of its peers, and is now the industry's
largest, with $210 billion in assets as of March 31.
Blackstone got the right to manage the assets of FGL Holdings
Inc., formerly known as Fidelity & Guaranty Life, when a
special-purpose acquisition company in which the private-equity
firm invested bought the insurer in late 2017. In February, FGL
said it was extending and enhancing its relationship with
Blackstone in conjunction with a deal by Fidelity National
Financial Inc. to buy FGL for $2.7 billion.
Closely held Global Atlantic has nearly $90 billion in assets
and more than two million policyholders. The insurance company was
founded in 2004 by Goldman Sachs Group Inc., where Global Atlantic
Chief Executive Allan Levine served as chief executive for the
investment bank's reinsurance group. It separated from Goldman in
2013.
Global Atlantic has a history of expansion through acquisitions,
completing 20 reinsurance transactions covering about $27 billion
in assets since its founding. KKR said it plans to continue to
build the business through mergers and acquisitions.
Like Athene and FGL, the company focuses on fixed annuities,
which pay owners a set amount of interest over the life of a
contract. Insurers make money by earning more on the money handed
over by buyers than they are required to pay out, making them
attractive to private-credit managers.
KKR will pay the amount of Global Atlantic's book value as of
the deal's closing through a combination of cash from the firm's
balance sheet, proceeds from potential minority co-investors and
the issuance of debt or equity. Global Atlantic's book value as of
March 31 was about $4.4 billion, the companies said.
Global Atlantic shareholders, which include Goldman and its
private-wealth clients, will have the opportunity to roll their
investments into the deal. KKR said it initially expects to have
about 60% economic ownership of the company.
Global Atlantic will remain a separate business under the
leadership of Mr. Levine.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com and Dave
Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
July 09, 2020 02:47 ET (06:47 GMT)
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