Alternative Asset Managers Embrace Insurance in $1 Trillion Transformation

What's New

Harvard Business School Professor George Serafeim and his State Street Associates co-authors document how alternative asset managers have acquired nearly $1 trillion in life and annuity products since 2019, fundamentally reshaping their funding models from episodic fundraising to permanent capital streams. According to Harvard Business School's research paper, insurance-backed platforms now account for 35% of new fixed annuity sales in the United States, up from just 7% in 2011, with firms like Apollo, KKR, Blackstone, and Brookfield leading this structural transformation through major acquisitions and partnerships.

Why It Matters

This shift represents the most significant evolution in alternative asset management since the industry's inception, addressing core limitations of traditional closed-end fund models while creating new revenue streams and growth opportunities. The transformation affects $5.5 trillion in assets under management and signals a permanent change in how these firms finance operations and generate returns.

Big Picture Drivers

• Capital Constraints: Traditional limited partner commitments have become saturated as pension funds and endowments reach policy allocation targets for private equity investments

• Interest Rate Environment: Historic low rates from 2019-2021 compressed insurance margins while providing cheap financing for asset manager acquisitions

• Regulatory Arbitrage: Private loans carry similar capital charges as public bonds under risk-based capital rules but offer 100-150 basis points higher yields

• Demographics: Baby boomer retirements drive massive demand for guaranteed income products, creating natural synergies between liability origination and asset management

• Proof of Concept: Early movers like Apollo's Athene demonstrated that PE-backed insurers could manage spread risk while generating mid-teens returns

By The Numbers

• 500% increase in total assets under management from $1.1 trillion (2014) to $5.5 trillion (2024)

• 1,000% growth in credit-focused AUM to $2.5 trillion by 2024, driven primarily by insurance partnerships

• 90% of total AUM now held by firms with insurance partnerships, up from 15% in 2014

• 25% lower price-to-earnings ratios for insurance-heavy managers compared to asset-light peers by 2024

Key Insights

• Funding Stability: Insurance float provides continuous capital inflows versus episodic closed-end fund vintages, enabling predictable investment pipeline planning and reducing perpetual fundraising pressure

• Product Expansion: Lower cost insurance capital unlocks previously uneconomic strategies like infrastructure debt and asset-backed lending that yield 50-250 basis points over public equivalents

• Earnings Trade-off: Spread income offers greater stability than performance fees but generates lower profit margins around 25% compared to 50% margins on traditional fee income

• Market Penalty: Investors apply conglomerate discounts to insurance-heavy firms despite lower earnings volatility, reflecting concerns about regulatory complexity and capital intensity

Key Trends to Watch

• Insurance-heavy firms are experiencing accelerated credit strategy expansion while traditional private equity growth moderates across the sector.

• Revenue composition is shifting dramatically toward spread-based income, with insurance operations now generating majority revenues for fully integrated firms.

• Valuation multiples are diverging as markets apply conglomerate discounts to insurance-integrated managers despite their lower earnings volatility.

• Interest rate sensitivity is increasing for insurance-heavy firms, creating new correlation patterns with broader financial markets and yield movements.

The Wrap

The insurance integration trend represents a foundational re-platforming rather than a peripheral strategy, fundamentally altering competitive dynamics, capital allocation, and value creation across financial services. While offering substantial benefits including funding stability and earnings diversification, the model introduces regulatory complexity and potentially permanent valuation discounts that firms must navigate as they scale these operations.

Read Full Report Harvard Business School Research Paper: "Permanent Capital Meets Private Markets: The Transformation of Alternative Asset Managers" (2024)

Excerpt