Blackstone’s (other) $20bn game-changer

The news cycle across the alternative assets universe has belonged to Blackstone this week.
 
Over the weekend the alternatives giant announced a whopping $20 billion commitment from Saudi Arabia's Public Investment Fund which, with further fundraising, will grow into a $40 billion fund that, with leverage, will invest more than $100 billion into infrastructure projects. You can read about the details on Infrastructure Investor .
 
Big numbers indeed. But while all eyes were on the asset manager's relationship with its new Saudi strategic partner, Blackstone was quietly finalising another pivotal partnership: the acquisition of annuity provider Fidelity & Guaranty Life.
 
The all-cash transaction, which values the business at $1.8 billion, is backed by Blackstone Tactical Opportunities; Blackstone's credit arm, GSO Capital Partners; and a special purpose acquisition company called CF Corporation, founded by former Blackstone dealmaker Chinh Chu and William Foley, who has spent more than 30 years at insurance company Fidelity National Financial.
 
When the transaction completes, “FGL will enter into an investment management agreement with affiliates of Blackstone”, the company said in a statement.  FGL has assets of $28 billion and PEI understands that Blackstone will likely end up managing the majority of it, although the firm declined to comment.

The FGL deal is garnering far fewer column inches than Blackstone's grandiose infra plans, but could be argued to be more noteworthy. For one thing, it is a 'done deal' pending customary closing conditions, whereas the infra fund is in memorandum of understanding phase. More importantly, however, the FGL brings the firm an alternative asset manager's holy grail: ready access to a sizeable chunk of quasi-permanent capital – up to $28 billion of it – to invest across all its platforms while earning management fees and carry from those commitments.
 
“A lot of these guys are after the insurance companies for the same reasons,” Meghan Neenan, an analyst at Fitch Ratings, told PEI earlier in the year, “and that is the opportunity to sub-advise on some of the cash that they invest. The alternative managers look at it as dry powder that's theirs for the taking, in a way.”
 
The relationship between private equity and insurance companies is not new. Back in 2009 Apollo created annuity company Athene, retaining a significant stake when the insurance company went public last year. In March this year KKR and CDPQ teamed up to purchase USI Insurance Services, an American insurance brokerage and consulting firm, for a reported $2 billion.
 
And Blackstone itself is no stranger to this strategy; the firm partnered with Axis Capital to create Harrington Re, a multi-line reinsurance company, which it launched last year. (Side note: Blackstone has said Harrington would commit to funds managed by GSO, which in turn has invested in FGL.)
 
There may be less fanfare around it – Blackstone itself has issued no press release about the transaction – but the FGL acquisition could be more valuable to the firm's success than its new infra platform.