Carlyle Group Inc.
has struck a sweeping new advisory agreement with reinsurer Fortitude Re that is set to significantly boost the private-equity firm’s assets under management.
Carlyle will earn a recurring fee based on all of Fortitude Re’s assets for assisting the reinsurer with acquisitions and identifying new growth opportunities, the firms plan to announce Thursday.
Carlyle, which manages $301 billion, expects its credit segment’s fee-earning assets to climb by $50 billion and its annualized fee-related earnings to rise by $50 million when the new agreement takes effect Friday.
Carlyle also raised $2.1 billion for Fortitude from the reinsurer’s existing investors and will commit up to $150 million from its balance sheet toward the total.
Carlyle in 2018 took a 19.9% stake in Fortitude, which was created to reinsure legacy liabilities of
American International Group Inc.
The following year, the firm said it would join with Japanese insurance company
T&D Holdings Inc.
to take a majority stake in the Bermuda-based reinsurer.
The latest deal is significant for Carlyle. Its credit business ended 2021 with $52 billion in fee-earning assets, and the firm reported $598 million in fee-related earnings for the full year.
The move is the latest evidence of how the biggest private-equity firms are looking to the insurance industry as a source of so-called permanent capital, which pays steady fees and doesn’t need to be constantly replenished.
Following in the footsteps of
Apollo Global Management Inc.,
firms including
& Co.,
Blackstone Inc.
and
have seized on the need among insurers to generate returns for their cash that go beyond what publicly traded corporate and government bonds can deliver. They have each developed their own insurance strategies, as well as an ever-expanding array of products that are specifically designed for insurance companies.
A significant amount of Fortitude’s assets are also invested in Carlyle’s products.
The new agreement advances Carlyle toward some of the goals set last year by Chief Executive
Kewsong Lee
: boosting global credit assets to more than $80 billion by 2024 and doubling the segment’s fee-related earnings.
In a unique twist on the typical management agreement, the fee Fortitude will pay Carlyle will be based on the reinsurer’s overall profitability. The other investors putting more money into Fortitude will also make a minority investment in the adviser entity that Carlyle is forming.
“We had to have a fee structure that’s really tied to the performance of Fortitude,” said Carlyle Head of Global Credit
Mark Jenkins.
“That creates a virtuous circle because ultimately we’re incentivized to grow in a way that benefits our investors.”
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com
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