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There is nothing dull about being a corporate lender these days. The loans business is migrating away from the beleaguered banking sector. Long-dated insurance premiums are becoming the funding of choice. The shift is sufficiently seismic that once overlooked credit firms are now the subject of bidding wars.
Legacy capital managers do not want to be caught flat-footed. Take Blue Owl Capital’s recent acquisition of Kuvare Asset Management for $750mn, which eventually could reach $1bn. It is a serious price for an asset manager that is only a decade old and manages $20bn. Blue Owl itself manages $165bn for a juicy market capitalisation of just above $20bn. But Kuvare has established itself as a canny specialist in the bespoke assets that life insurers invest in.
Kuvare joins a growing trend. A few weeks earlier, Japan’s Dai-ichi Life Holdings took a stake in Canyon Capital, a $20bn credit manager that made its name as a distressed and opportunistic debt expert. Within a few years, Dai-ichi will have the chance to acquire all of Canyon. Last year, private equity stalwart TPG attempted to jump on the insurance bandwagon by acquiring the credit specialist Angelo Gordon for $2.7bn.
For acquirers, the payoff remains uncertain. But debt markets present a bigger opportunity than equity markets and insurance has proved to be a reliable source of fee-paying permanent capital. For the limited universe of targets, this is the moment to cash in.
The Blue Owl deal is a little trickier than meets the eye. Apart from the investment manager, Kuvare also sells annuities. Blue Owl will make a separate $250mn injection into that annuities vehicle.
It is worth the extra effort. Blue Owl already has a large credit business, but it largely focuses on debt for large technology leveraged buyouts. Kuvare, on the other hand, targets investment grade instruments in private markets or securitised bonds. These should offer extra returns for holding complexity or illiquidity without adding credit risk. Blue Owl will make money by keeping the higher spread between payouts to policyholders and investment returns.
There is a philosophical debate to be had over whether insurers and related-party asset managers’ integration raises principal/agent conflicts. Those thorny questions have been left for buyers like Blue Owl to sort out.
When they were founded, the likes of Kuvare, Canyon and Angelo Gordon did not occupy the most glamorous corners of Wall Street. Slow, steady and humdrum is having its day in the sun.
