From Bloomberg via Yahoo Finance, May 2:
A couple of years ago Clive Cowdery had a problem. The large life insurer that he’d founded was amassing customer cash faster than it could find ways to put that hoard to work.
As payments piled up at Resolution Life, two of every three dollars sat idle. The company decided it couldn’t hang around for its in-house crew to scour the globe for the bonds, mortgages and other assets in which insurers typically invest people’s money. So it turned to Blackstone Inc.
Like fellow “alternative” investment titans Apollo Global Management Inc. and KKR & Co., Blackstone has been eagerly driving the expansion of the booming multi-trillion dollar private-debt markets lately as old money-spinners such as company buyouts and property have been whacked by higher interest rates. Tapping the vast coffers of insurers is becoming crucial to that push.
After sealing a partnership with Resolution — similar to deals with arms of the giant insurers American International Group and Allstate — Blackstone is now a key asset manager for the firm, in charge of a cash pot that could hit $60 billion. A big part of its pitch went like this: Let us tie up your money in rarely traded private debt and you’ll nab better returns than plain-vanilla bonds. In exchange Blackstone gets a ready buyer of the company loans and more complex investments that emerge from its credit division; and steady fees.
“If you’re going to put all your eggs in one basket, it should be a good one,” Cowdery says, when recalling the 2022 partnership deal in an interview with Bloomberg. He expects Blackstone to help bring Resolution’s private-debt exposure to as much as a quarter of its assets.
Life insurer tie-ups aren’t the sole reason Blackstone is among the world’s biggest credit managers, nor why it’s bullish enough to aim to more than double its credit assets to $1 trillion in a decade. And yet they’re fast emerging as a vital engine of growth. Blackstone recently merged its credit and insurance arms and promoted insurance boss Gilles Dellaert, 45, to head the combined unit after he’d knitted together the partnerships with Resolution and others.
The credit division he now runs snagged $94 billion of net new cash in two years, trumping Blackstone’s private equity arm. That’s more than Luxembourg’s GDP — further proof of how a small band of private firms is usurping Wall Street as the real power in global capital markets, and why financial regulators are increasingly anxious about how best to police them.
“We think this can be much, much, much larger,” Blackstone president Jon Gray tells Bloomberg.
Insurance tie-ups are central to this ambition, as they are at his biggest rivals. While Apollo and KKR have opted for full ownership of insurers, Blackstone has sought out minority stakes and asset-management deals, as it did with Resolution. It has bespoke accounts with others in the industry. Its insurance assets alone passed $200 billion in the first quarter of 2024.
Much of this money is fueling the boom times in private credit. Wall Street banks used to be the chief providers of company loans, but post-crisis capital rules have made this harder, letting “nonbanks” like Blackstone muscle in. Defenders of the private markets say it’s safer to fund lengthy loans by using long-term cash from insurers and pension schemes, rather than from institutions such as regional banks who rely on customer deposits, “which in today’s technological world, can go ‘poof,’” according to Gray.
“The growth in private credit is super helpful to enhancing the resilience of the financial system,” he adds.
Nevertheless, the market’s untested in a crisis. Regulators fret about how investors could sell private loans in an emergency, and whether they’re being valued correctly. The International Monetary Fund has warned of stability risks from “entities with particularly high exposure to private credit markets, such as insurers influenced by private equity firms.” Stung by the loss of lucrative lending work, Wall Street bosses such as JPMorgan Chase & Co.’s Jamie Dimon want tougher oversight of what they’ve called their shadow bank rivals....
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