Side Letter: Blackstone’s $93bn insurer tie-up; Creador’s first close; OMERS PE’s incentives

Blackstone's latest insurance deal will see it manage $92.5bn over the next six years. Plus: Malaysia's Creador holds a first close and why a lawsuit involving OMERS PE provides a rare glimpse into how LPs incentivise their direct deal teams. Here's today's brief, for our valued subscribers only.

They said it

“Inflation concerns [are] top of mind for investors who need to assess the potential impact on their portfolios.”

In a Wednesday earnings call, BlackRock chief Larry Fink discusses the implications of rising inflation for investors.

Just happened

Blackstone’s insurance policy
Blackstone unveiled plans yesterday to acquire a 9.9 percent stake in AIG’s Life & Retirement Business. The $2.2 billion transaction involves a strategic asset management relationship to manage an initial $50 billion of the insurer’s existing investment portfolio, rising to $92.5 billion over the next six years, per a statement.

This latest deal echoes Blackstone’s 2017 acquisition of annuity provider Fidelity & Guaranty Life, which included plans to manage the majority of the insurer’s $28 billion of assets. KKR and Carlyle have made similar investments in recent years, and Apollo has owned Athene since 2009. The latter pair announced plans to merge in March, the reasons for which are examined in greater detail here.

Insurance deals represent an alternative asset manager’s holy grail: ready access to a sizeable chunk of quasi-permanent capital to invest across their platforms while earning management fees and carry. Blackstone’s latest foray into the sector is unlikely to be the market’s last.

Creador fund scoop
Southeast Asian growth investor Creador has held a first close on its fifth fund, Side Letter understands. The firm has collected $500 million against a $600 million target and is expected to hold a final close at its $680 million hard-cap by year-end. It will primarily invest across Malaysia, Indonesia and India. Most of the capital was committed by LPs in its $565 million Fund IV, which closed in 2018. Creador declined to comment.

OMERS lawsuit
OMERS Private Equity is facing a lawsuit from former healthcare head Tim Patterson, who alleges that his contract was terminated “without just cause” for refusing a cut in his compensation package, affiliate title Buyouts reports (registration required). The case is particularly noteworthy because it offers a rare glimpse into how the world’s largest direct investors compensate their investment professionals. Here are some notable takeaways:

  • OMERS’ 2013 long-term incentive plan allegedly offered 10 percent carry, below the standard 20 percent to account for the fact that it does not have to raise capital.
  • To determine multi-year gains for eventual realisations, deal team members each allegedly had a pooled fund of investments upon which an 8 percent cumulative preferred return was calculated. A vintage-year cap limited the size of annual payouts.
  • The suit alleges that OMERS later made a series of revisions to the plan that gradually ate away at compensation benefits, such as carry reductions and further caps on earnings.
  • An initiative last year to swap the cumulative hurdle for a per-year calculation spawned an “employee revolt”, the suit alleges.

LPs with direct portfolios of similar scale to OMERS are few and far between – institutions hoping to emulate the pension’s programme may be watching this case with interest.

They did the math

Want returns? Head to Europe
European buyout funds have significantly outperformed their international peers in terms of IRR over the past three decades, according to the latest data from Invest Europe and Cambridge Associates. These funds also outperformed the MSCI Europe, generating an IRR of 15.06 percent versus 5.48 percent, and a MOIC of 1.69x against 1.20x.


Harris flies solo?
Apollo co-founder Josh Harris plans to raise a new fund after his upcoming departure from the alternatives giant, Bloomberg reports. Harris, who recently announced plans to leave the firm in 2022, will seek about $5 billion for the mid-market. Apollo’s leadership team was shaken over the past year by investigations around co-founder Leon Black’s relationship with deceased convicted sex trafficker Jeffrey Epstein. You can read our handy guide to Apollo’s remaining executive committee here.

Dig deeper

Institution: Fubon Life Insurance
Headquarters: Taipei, Taiwan
AUM: NT$4.52 trillion

Fubon Life Insurance has agreed to commit $65 million to Insight Partners XII. The fund is managed by Insight Partners and will invest in venture capital firms in North America, Asia-Pacific and Western Europe.

The Taiwanese insurer’s recent private equity commitments have focused on buyouts and venture capital/growth equity strategies.

For more information on Fubon Life Insurance, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Rod James and Carmela Mendoza.