CHICAGO AAM Investments, the Chicago-based insurance manager with $17.2 billion in assets, has sold a majority ownership position to two private equity firms, ending a roughly yearlong search to sell the stake in the firm.
John Schaefer, principal and president of AAM, said that the firm finalized an agreement on Dec. 21 with investors Stone Point Capital LLC, Greenwich, Conn., and Keefe Bruyette & Woods Inc., New York, which will combine to acquire a more than 50% stake in the firm. Terms were not disclosed.
Stone Point, run by former Goldman Sachs Group Inc. executives Stephen Friedman and Charles Davis, will invest in AAM through its Trident Funds which focus on investments in insurance and financial services companies and will hold a large majority of the new outside ownership stake, said Mr. Schaefer.
This newly acquired stake in AAM has mostly been held by Boston-based private equity firm Century Capital Management LLC, which was looking for an exit for its investment in the firm. The remainder of the firm is owned by management.
The new deal allows AAM the largest independently owned manager of insurance assets, according to Pensions & Investments data to maintain control and the day-to-day operation of its business, said Mr. Schaefer. It will also allow the firm to create a new pool of equity, one that will become available to those employees who become management in the near future, Mr. Schaefer added.
We held talks with a number of financial institutions over the last year, but we opted for a strategic investor, rather than being acquired or merged, because we wanted to maintain our independence, said Mr. Schaefer. Keeping control of our business and growing the company are our top priorities, and this new ownership structure is the best way to achieve those goals.
Overall, the significant number of inquiries AAM received from potential acquirers underscores the growing interest in the business of managing insurance companies assets. AAM is the 11th largest manager of insurance assets (P&I, July 23). Mr. Schaefer said that AAM mostly received interest from financial institutions that were looking to make an entry into the insurance asset management business, as well as from firms that were looking to enhance their presence in the industry. He would not identify any suitors.
Insurance companies increasingly have opted to outsource the investment management of their general account assets in recent years, prompting a considerable spike in the amount of insurance assets run by money managers.
The 50 largest insurance asset managers now run roughly $801 billion, up 28% from 2005, according to P&I data.
Without a doubt its the fastest-growing segment of the institutional marketplace, said David Holmes, partner at strategic consulting firm Eager, Davis & Holmes LLC in Louisville, Ky. Its leading a lot of managers to reassess their existing businesses so they can figure out how to capitalize on the growth in insurance outsourcing.
Eager, Davis & Holmes estimates that because of the outsourcing, managed insurance assets are increasing by 7.9% per year. By comparison, assets from endowments are growing roughly 10% a year; foundations, 7.5%; and retirement plans, 6.7%, according to Eager, Davis research.
Mr. Schaefer said he sees AAM, which has increased its assets by 20% over the last two years, should continue to see growth rates of 20% to 30% annually. The deal with Stone Point and KBW, he added, will help AAM maintain the strong growth rate.
Both companies have a particularly strong understanding of the market, as well as relationships with a number of insurance companies, he said. And in this business, you grow one insurance account at a time.