JAB Holding, the biggest investor in Krispy Kreme, Pret A Manger and Coty, is overhauling its investment strategy to start an insurance business in a dramatic pivot for the consumer and food empire whose portfolio has struggled in recent years.
The company will announce on Monday that it has hired Anant Bhalla, a US-based insurance veteran who will become its chief investment officer and a senior partner, to build its new insurance platform.
The strategy shift comes months after JAB abruptly replaced its longtime chief executive Olivier Goudet, a former Mars executive who spearheaded a $50bn deal spree that transformed JAB into the owner of some of the best-known consumer brands.
JAB’s new leaders told the Financial Times that the steady returns generated by insurance assets were now the best fit for what it describes as the permanent capital of Germany’s billionaire Reimann family, whose wealth is managed through the group.
“We have got a clear mandate to diversify and scale our portfolio with our shareholders’ patient capital,” said Joachim Creus, who replaced Goudet as JAB chief executive. “We are thinking very long-term, for generations of the family. We are fiduciaries for the family.”
Bhalla said: “It’s the permanent capital from their shareholder, which is the right owner of insurance for generations to come.”
The new CIO has been a pioneer in aggressively investing cheap capital from policyholder premiums in private assets to generate outsized returns. He was most recently chief executive of American Equity Investment Life, which was just acquired by Brookfield for $4bn.
JAB says it is better positioned than other private capital competitors to become an owner of an integrated insurance and asset management company.
Creus said: “We believe that this is for us fundamentally a much better fit because we are long-term patient capital, where private equity, by definition, they are thinking five, six, seven years, and that doesn’t really fit with the insurance idea.”
Investment houses pushing into the insurance business have attracted the attention of regulators, who have warned about the dangers of mixing potentially riskier investment strategies with the savings of pensioners.
For JAB, the insurance push is the latest evolution of an investment holding company set up by German executive Peter Harf who has shepherded the fortune of the intensely private Reimann family since 1980.
Over that time, the 78-year-old Harf has taken the family’s wealth, emanating from its origins in a Mittelstand chemicals business that owned stakes in Reckitt Benckiser and Coty, into a conglomerate with a sprawling portfolio.
JAB now manages about $50bn of assets, of which about $33bn is attributed to the Reimanns. Its investments include large stakes in well-known brands including sandwich chain Pret A Manger, drinks giant Keurig Dr Pepper, coffee group JDE Peet’s and beauty group Coty. It will look to sell down its portfolio as it shifts focus.
“If you look back 12 years ago, we were basically a family office with a couple of assets, large assets . . . a very, very concentrated portfolio,” said Frank Engelen, JAB’s new chief financial officer. “The portfolio has been diversified in consumer goods and services.”
As JAB pursued more aggressive dealmaking in the consumer sector, Harf and Goudet raised a series of private equity funds with third-party capital from sovereign wealth funds, endowments and other rich families to fuel the pace of expansion.
But the transformation has not been smooth. Bart Becht, the former Reckitt Benckiser chief executive, quit JAB in 2019 after disagreeing with his partners over the scale of dealmaking, arguing that the group needed to spend more time improving operations in its portfolio companies.
The spree also led to the firm being overexposed to consumer companies, an issue that became acute during the pandemic. This played a role in the holding company’s decision to diversify into other sectors.
“If you have a big macro headwind like we had in Covid, or the big macro headwind as we have today with coffee, obviously that immediately has a significant impact on the total portfolio return,” said Engelen. “The big benefit of diversifying beyond consumers is that you spread the risk.”
JAB has in recent years shifted its focus, investing roughly $5bn into petcare and pet insurance companies beginning in 2019. The pet insurance business, which includes about 20 brands, will eventually be folded into the broader insurance platform.
Alongside moving into the pet sector, JAB has attempted to cash out of some of its older investments with mixed results. Coffee group JDE Peet’s was taken public in 2020 and Krispy Kreme followed the next year.
Both companies have struggled and are down more than 30 per cent from their listing prices. JAB has been attempting to list Panera Bread for years.
Goudet was replaced in November days after JAB’s annual meeting, in a move that blindsided investors and JAB stakeholders, according to multiple people with knowledge of the event.
Alongside failing to properly communicate the departure of senior personnel, at least one of the consumer funds has delivered disappointing returns, one investor told the FT.
Bhalla had been considering his next move since the AEL sale to Brookfield was announced last summer.
He told the FT last month that he was seeking to raise $1bn in equity to fund a “merchant bank” that would then take on $10bn-$15bn in long-dated insurance liabilities and invest some of those funds in alternative assets such as private credit.
Conversations with JAB about investing in the venture started late last year and led to the agreement under which Bhalla will join the group. He will also spearhead a push to raise a series of new, “thematic” funds that external investors will be able to access.
Bhalla had told the FT that areas such as cold storage facilities, private credit and data centres were well-suited to meet the needs of insurance capital.
“I would say look, you have the Berkshire [Hathaway] model and you have the alternatives model. There is a model about long-term compounding equity value versus generating fees to create value,” Engelen said, referring to Warren Buffett’s insurance-centred investment vehicle.
“We are more in the first model, we are absolutely not in the second model.”
