Insurance companies are starting to seek out alternative investment managers to handle discretionary, multistrategy portfolios, the money managers say.
Insurance companies are more open now to alternative investments as a way of getting higher returns than their low-performing fixed-income portfolios, while staying within the risk limits set by the National Association of Insurance Commissioners, the U.S. insurance regulator.
This is great news for alternative investment managers trying to get a larger slice of the estimated $17.8 trillion in insurance company assets worldwide as of December.
So far, alternative investment firms have been getting into the business of managing insurance company assets in one of two ways. A few larger alternatives managers have bought insurance companies, gaining control of insurance company assets. Examples include Goldman Sachs Group Inc., Guggenheim Partners LLC and Apollo Global Management.
Apollo's insurance unit, Athene Asset Management, had $61 billion in assets under management as of June 30 related to a fixed annuity insurance company owned by an Apollo subsidiary, Athene Holding Ltd. About $10.4 billion of Athene Asset Management's assets are invested in Apollo Global Management funds or other investment vehicles, or subadvised by Apollo, according to Apollo's website. Apollo executives were unavailable for comment.
A second way is that some insurance companies are buying stakes in alternative investment managers, keeping the managers' interests aligned with theirs, as well as investing with them.
In January 2013, Allied World Assurance Co. Holdings, a Zug, Switzerland-based insurance company, bought a minority stake in private debt firm Crescent Capital Group, Los Angeles, and invested $500 million with Crescent in a diversified credit portfolio.
In October 2012, Allied World also acquired a minority stake and invested $500 million with hedge fund manager MatlinPatterson Global Advisors LLC, New York, and, two months later, took a minority stake in Aeolus Capital Management, a Bermuda-based asset management company that invests in the property catastrophe reinsurance and retrocession market.
Allied World is not alone. Alleghany Corp. last year bought a 6.25% stake in Los Angeles-based Ares Management LP and committed $1 billion in investments the insurance company cannot make in-house, including to Ares' credit opportunity strategy, said Antony P. Ressler, chairman, co-founder and CEO of Ares.
Ares' insurance business is the money manager's fastest growing unit, said David Reilly, senior partner and head of Ares Insurance Solutions as well as head of business development. The firm manages more than $5 billion for insurers.
“We believe that insurance companies will continue to be the fastest growing investor segment of Ares Management
“High-grade structured assets, non-investment grade corporate credit and self-originated loans to companies or commercial real estate - all strategies which we consider to be on the conservative end of the alternative asset spectrum - are in the highest demand from insurance companies,” Mr. Ressler said.