The future of AIG Investments is uncertain following Tuesdays agreement with the Federal Reserve Bank of New York to extend an $85 billion two-year secured loan to parent American International Group Inc. at a favorable interest rate of three-month LIBOR plus 8.5 percentage points. The Fed will take a 79.9% equity stake in the insurer as part of the deal.
In a statement issued Tuesday night, the Fed said: This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner. The loan is expected to be repaid from the proceeds of the sale of the firms assets. Whats not clear is whether the insurers money management unit will be among the AIG businesses sold.
AIG Investments had $758 billion in assets under management as of June 30, but more than 80% of its assets are managed for the parent company, mostly general account assets. As of March 30, the most recent date for which an asset breakdown is available, external client assets totaled $127 billion.
AIG Investments is a bond specialist, with 80% of assets managed as of March 30 invested in U.S. and international fixed income and just 9% invested in U.S. and international equities; 6% in alternatives, including private equity, CDOs, hedge fund of funds and mortgages; 3% in equity real estate; and 2% in balanced funds.
According to an AIG news release: The AIG board has approved this transaction (with the Fed) based on its determination that this is the best alternative for all of AIGs constituencies. We believe the loan will give AIG the time necessary to conduct asset sales on an orderly basis. We expect that the proceeds of these sales will be sufficient to repay the loan in full and enable AIGs businesses to continue as substantial participants in their respective markets.
Braden Bledsoe, an AIG Investments spokeswoman, did not return a call seeking information about the potential sale of the asset management unit. Win J. Neuger, chairman and CEO of AIG Investments, was not available for comment.
AIG Investments institutional clients, like the $5.9 billion San Bernardino County (Calif.) Employees Retirement Association, await information from the asset manager. Don Pierce, the associations investment officer, said officials there will decide how to proceed after talking to AIG executives Thursday.
San Bernardino has committed or invested $500 million with the firm. Also at stake is the $30 million commitment to AIG Investments Mortgage Opportunity Fund that the board approved in July, but which is still the subject of contract negotiations.
We are trying to ascertain what this means for us first before we make other decisions, Mr. Pierce said.