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https://www.ft.com/content/ee40241a-c568-4673-88df...

On FT Alphaville - which should be free.


Historically, PE business models have relied on PE firms or financial sponsors (general partners) raising funding at arm’s length from investors (limited partners) such as insurers, pension schemes, and family offices. Funds raised would then be used to lend to PE-sponsored corporates. The PE firm itself would retain limited risk on the underlying assets (eg high-yield bonds, leveraged loans), which they mostly originated to distribute to investors.

[However] . . . by acquiring life insurance liabilities, PE firms take control of how insurance premiums are invested and use these to, among other things, provide credit lines to PE-sponsored corporates.

Nice read.

Snip:
"As you can see above, the non-PE-linked insurer that blows all the others out of the water — with 70 per cent of its bond holdings issued by affiliates — is Berkshire Hathaway, the OG of private company ownership. But in size it is dwarfed by the likes of KKR’s Global Atlantic and Apollo’s Athene."


More generally, it's really hard to see how this can NOT end badly. It seems so painfully obvious, like the day I first read about a CDO-squared.
(where "this" is defined as PE firms buying insurers, then directing those insurers to invest their float into securities of entities related to the PE firm)

Jim

[...] it's really hard to see how this can NOT end badly. It seems so painfully obvious, like the day I first read about a CDO-squared.

Is there a way we can make money here, like Burry betting against the US mortgage market?

<<Apollo is a large, sophisticated and diversified private capital firm. As such, its elevated exposure to affiliates could simply be the result of Athene’s enviable access to the kind of diversified pool of higher-yielding private credit assets that every insurer would ideally want to hold.>>

On this hot humid day in the Detroit Area I was really amused to read this because I was taking a break
from reading a Munger book recommendation The Caesars Palace Coup: How a Billionaire Brawl Over the Famous
Casino Exposed the Corruption of the Private Equity Industry. I am on P.198 so I have another 100 pages or so
to go but Apollo figures prominently and I would want to count all my fingers after shaking hands with them on
a deal.

Long story short distressed debt restructures, guarantees and where you stand senior or junior in the debt
structure all meant nothing when it came to the "laws" of the Jungle.

Well worth a read.

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