Blackstone signs contract to manage AIG’s life and retirement assets

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Group Inc. has entered into a major contract with American International Group Inc. to manage some of the assets that underpin AIG’s life insurance policies and annuities. This is a major step towards making private equity firms a major player in the insurance industry.

Blackstone has signed a long-term contract to manage its first $ 50 billion in assets, which will grow to nearly $ 100 billion over the next six years, the two companies said on Wednesday. AIG Unit has assets of approximately $ 200 billion.

The private equity firm will also pay out $ 2.2 billion of a 9.9% stake in the life insurance and pensions division of AIG, and Blackstone chairman Jonathan Gray will join the board administration, sources said.

AIG, a global insurance conglomerate, is preparing to split its units into separate companies, with the parent company dedicated to non-life insurance. AIG announced a sale plan in October and continues to work on the unit’s initial public offering.

Blackstone’s non-commercial real estate investment trust BREIT is also buying $ 5.1 billion worth of affordable real estate assets in the United States that AIG has kept on its books for decades, but which is not considered to be. the heart of its activity. I signed a contract.

Insurance has been a priority for buyout companies in recent years, providing stable cash flow for investing and reliable if not superb returns.

The deal will turn Blackstone’s insurance business into around $ 150 billion in assets under management by the end of 2021 after considering a deal earlier this year by an entity managed by Blackstone to buy the business from the business. life insurance from Allstate. Will push it up. Co., Ltd.

Global management of Apollo Co., Ltd.

A long-time leader in insurance strategy, he managed assets totaling approximately $ 250 billion on behalf of the subsidiary Athene Holding. Co., Ltd.

At the end of the first quarter, Athora Holding Ltd. Apollo announced in March an agreement to buy part of Athens that it does not yet own.

KKR & Co. has signed an agreement to acquire insurer Global Atlantic Financial Group Ltd. in February, allowing it to manage around $ 90 billion in insurance assets.

Unlike Apollo and KKR, Blackstone is not interested in owning a controlling stake in an insurance company. For all-state transactions, mainly financed by Blackstone, Blackstone holds just under 10% of the insurer’s capital on its own balance sheet.

The push for private equity funds in the life insurance industry is part of a desire to manage more so-called permanent capital that does not need to be constantly replenished. In an era of low interest rates, companies have felt the need to generate more returns among life insurers than listed corporate and government bonds can provide. The two companies have developed a credit platform that creates an ever-expanding product line, including personal loans, asset-backed securities and aviation finance specifically designed for insurers.

Meanwhile, life insurers are trying to remove or reduce their exposure to product lines whose profitability is declining due to ultra-low interest rates. Insurers depend on interest income from large fixed income portfolios for a significant portion of their profits. They invest the premium dollars paid by the client in ordinary vanilla-rated bonds until they have to foot the bill.

In its partnership with Blackstone, AIG does not anticipate any change in the allocation of its entire portfolio. The assets managed by Blackstone have already been invested in illiquid categories.

Write to Miriam Gottfried (Miriam.Gottfried@wsj.com) and Leslie Scism (leslie.scism@wsj.com)

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