Asset managers have it easy. The parties, the access, the spreadsheets. And the money isn’t bad. However, to keep the show on the road, there is the minor detail of winning and retaining clients. But what if you just bought them?
While this isn’t exactly what private equity firms have done, neither is it completely not what they’ve done. As the Bank of England wrote in its latest Financial Stability Report:
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.
This is a neat trick, mimicking the foundation stone on which Warren Buffett arguably built Berkshire Hathaway into a much-envied $1tn investment empire.
