Blackstone Group LP has bigger plans for insurance companies than just managing their money. The world’s largest private equity firm is expanding into a lucrative business dominated by BlackRock Inc.: portfolio risk analytics.
Bennett Goodman, co-founder of Blackstone’s GSO credit unit and chairman of its new insurance-solutions business, described the plan in a Bloomberg Television interview with Erik Schatzker airing Friday.
“How can we help these insurance companies monitor what they own, stress test what they own, plug in different macroeconomic variables, see what that does to the portfolio,” Goodman said. “One of the things in the laboratory under the R&D category is to try to sort out how we can do that,” he said, referring to a “world-class risk-analytics capability.”
Money managers are jumping into data analytics as a way to both harness their own information and offer institutional investors allocation advice. While BlackRock has dominated risk analytics for publicly traded securities through its Aladdin platform, Blackstone’s foray will be a key test case in how to channel data from the traditionally opaque world of alternative assets.
Offerings ‘Array’
Insurance is a logical place to start. Years of low yields in the fixed-income market have insurers looking for higher returns to match their policyholder obligations. With more than $20 trillion of insurance assets potentially up for grabs, alternative asset managers such as Blackstone and Apollo Global Management LLC are eagerly structuring longer duration, yield-oriented products that meet insurers’ demand.
Whereas the average junk bond yields about 6 percent, Goodman said Blackstone can originate senior loans to mid-size companies at yields of 8 percent or more.
Goodman mentioned the risk-analytics initiative as part of “an array of things” Blackstone envisions doing with its new insurance-solutions business. The group, which launched in January with more than $22 billion of assets under the leadership of former New York Life Insurance Co. executive Chris Blunt, will offer insurers investment-grade credit products that may include corporate loans, acquisition finance or slices of structured-debt securitizations.
The business could generate $500 million a year in management fees once it scales to at least $100 billion in assets, Goodman said, and is seeking to add 10 to 15 people over the next few years to the 25 it employs now. New York-based Blackstone recently created a committee across its various businesses to meet regularly and discuss ways to create products that meet the capital, duration, liquidity and asset-liability needs of insurers. Goodman described that structure as “very different” from the way Blackstone was organized previously.
“Now we have a new LP — the insurance community — so we need to get people focused on how does that create a situation where we can redesign the capital structures or our financing activities for what we’re trying to accomplish,” he said.