Private equity’s hunt for permanent capital is likely to prompt more tie-ups with insurers to boost their private credit offerings, according to a new report from Oliver Wyman.
The consultancy firm’s annual global wealth and asset management outlook, released in partnership with Morgan Stanley, has found that private equity firms are growing their private credit franchises by taking ownership stakes in one or more insurers, or by helping to capitalise a separate reinsurer.
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“The primary logic of these deals are predicated on the creation of an ‘insurance-private credit flywheel’ where the insurer becomes more competitive in spread-intensive products (e.g., whole life insurance, annuities), which feeds more premiums into the asset manager, which helps them scale and deliver superior yields to the insurer, which in turn helps the asset manager scale further and drive growth in the asset manager’s third-party business as well,” the report said. “Some alternative managers may seek to strike strategic partnerships to conduct a similar strategy without an ownership stake.”
Read more: CNO Financial Group buys minority stake in Victory Park Capital
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Insurers have increasingly been partnering with private credit firms as they have sizeable amounts of money on their balance sheet that they need to invest.
Earlier this week, it emerged that US life and health insurer CNO Financial Group is acquiring a minority stake in asset-backed credit specialist Victory Park Capital.
Last year, Golub Capital entered into a strategic partnership with Nassau Financial Group, providing Nassau’s insurance subsidiaries with access to its middle market direct lending strategies. It also took a minority stake in Nassau.
And Arrow Global’s founder Zach Lewy told Alternative Credit Investor last year that he expects the “notable and recurring convergence between credit managers and insurers” to continue.
