Athene Holding Ltd., untested at running pension funds, wants to compete with the industry's oldest and biggest firms.
Jumping into the business of owning retirement plans would benefit Apollo Global Management L.L.C., the New York-based private equity shop led by billionaire Leon Black. Athene, co-created by Black's firm eight years ago, would pay Apollo to manage the pension money.
Companies looking to make employee-pension funds someone else's challenge have sold them to giant insurers such as Prudential Financial Inc. and MetLife Inc. The two firms, a combined 291 years old, are among companies leading a surge that's more than tripled the size of pension-transfer deals since 2013. Athene is hoping that its quirkier investment strategy and tax-efficient Bermuda location will help it price deals better than the incumbents. But with a smaller balance sheet and lower credit rating, it would have to scrap to compete.
"Our competitive advantage starts with our tax-efficient structure," Athene co-founder and Chief Executive Officer Jim Belardi said in an Aug. 10 interview. "That's a competitive advantage in each segment that we operate in."
Insurers are betting that their prowess at managing liabilities tied to longevity will help them oversee plans for workers at companies such as General Motors Co. and Verizon Communications Inc. But there's little margin for error, according to MetLife CEO Steve Kandarian. Insurers have to get transaction prices right or they risk running short of cash years down the line, especially if pensioners live longer than expected or if market fluctuations hurt their ability to generate enough income.
First Deal
Athene said it won its first deal for a pension fund in the second quarter, taking on $320 million of obligations for more than 10,000 retirees. Athene President Bill Wheeler said the size of the transaction is a "sweet spot" and Athene would target pension deals of about $200 million or more. Wheeler didn't identify the other company in the deal.
"Now it's a matter of how many of these transactions can you onboard at once," Wheeler said on an Aug. 10 conference call. "And you know there's a limit. I want to test that limit and see how many we can do."
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New business means more money-management fees for Apollo. The firm earns about 40 basis points for the first $65.8 billion that Athene holds and 30 basis points for assets above that threshold. A basis point is 0.01 percentage point.
Charles Zehren, an Apollo spokesman, declined to comment.
Balance Sheet
Athene enters the competition with the burdens of an upstart. Not only does its $93.6 billion balance sheet hardly compare with the $700 billion-plus fortresses that Prudential and MetLife each command, its investment strategy varies from its peers.
"There are problems with being the new guy on the block — people don't know you," Wheeler said in an interview. But "we don't have any of those old legacy problems that frankly, if you've been around 50 years, you're going to have."
