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Do you invest your pension in private assets? You may already be doing so. Institutional investors have built up significant exposure to private equity and private debt in their search for market-building investment returns. Currently, alternative asset managers in North America are coming to the UK savings pot in a more direct way.
Canadian giant Brookfield agreed on Thursday to acquire London’s Just Group for £2.4 billion. Earlier this month, Apollo-backed Atla signed a £5.7 billion contract to buy the UK Pension Insurance Corporation.
Such transactions are novel in the UK market. But they replicate the trends that have been gathering pace in the US. According to Moody’s, between 2019 and 2024, Private Equity Group invested $75 billion in US life insurance companies. Companies like Apollo, KKR and Brookfield have spent billions of dollars buying and building large insurance companies for their own balance sheets.
It’s not hard to see why private capital companies are wandering around for insurance companies in general, and in the UK in particular. Pension pots offer a cheap, sticky pool of capital that can be deployed in private margin trading, especially in sectors such as real estate and infrastructure, which tend to have long-term perspectives and predictable returns.
And it makes sense for insurers to invest the amount of policyholder money into illiquid assets. They will only return the money to the client on retirement, and illiquid assets should provide a little extra yield on the same credit risk. Private credit holdings in US living and pension companies have more than doubled in the past decade.
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Meanwhile, private capital groups who like the look of pension pots are in urgent need of toes in the London market. Higher bond yields reduce the value of pension liabilities, which means more companies can afford to offload defined benefits pension plans.
In fact, Sector Consultancy LCP predicts that the pension risk transfer market will win another bumper year in 2025, with over 300 deals in its third year running, with £400-£50 billion in shopping. This flood of investment opportunities may help explain why Brookfield, who has begun a slow process of building his own organic UK insurance company, decided to buy the group’s established franchise.
Private capital providers and insurance companies have a synergistic effect, but there is no risk in partnerships. For one, personal credit is a new growing sector, and its resilience in recession has not been tested. Additionally, insurance companies tend to invest policyholder money in assets born from parents.
There is a way to manage the risks this creates. Considering the use of a special committee, endless valuation, consultant, we examine the price at which the asset is transferred. However, the biggest safeguard is the sharp-eyed regulator. Now that this investment trend has landed in London, the Bank of England is planning to train their vision on the sector to ensure that deals that are beneficial to acquirers are good for new customers as well.
camilla.palladino@ft.com
