As per a new report from Bloomberg, Carlyle Group Inc. is investigating a potential role in the pension risk transfer market, with particular interest in the UK.
Bloomberg noted that with workers living longer and markets in flux, employers worldwide are trying to get traditional pensions off their books, with many turning to pension risk transfers (PRT).
According to a report from Legal and General in August this year, rising pension funding ratios are driving unprecedented demand in the PRT market, with record transactions in the first half of 2023 in the US and UK.
“Carlyle executives are in early talks over the ways it could arrange financial support for insurers that assume pension liabilities,” Bloomberg said, citing people familiar with the matter.
Said people reportedly added that Carlyle is still studying the market and could opt to stay out of it, though the firm’s interest “reflects private equity’s transcendence beyond its buyout roots and into an array of alternative investments.”
Bloomberg observed that Carlyle is angling for deeper ties to insurers in particular, “as they could entrust it with new cash.”
“Carlyle raises money to provide financing and is one of the world’s biggest managers of collateralized loan obligations. Insurers are turning to such investments for cash streams and hoping that more complex securities can deliver some extra returns along the way,” the report added.
Harvey Schwartz, Carlyle’s Chief Executive Officer revealed his ambitions in November when he said the firm anticipates “substantial growth” from insurers and expects credit to be “significantly larger over time.”
The firm already holds a majority stake in Bermuda reinsurer Fortitude Re, which has $100 billion of assets.
Bloomberg’s report noted that Carlyle isn’t expected to create insurance contracts using its own balance sheet, adding its top leaders have repeatedly stressed it has no desire to become an insurer — or be regulated like one.
It concluded, “In the UK, where like others Carlyle sees an opportunity, fewer than 10 insurers are seen as ready to absorb pension plans’ liabilities as regulation, high capital adequacy requirements and the hefty investment needed in resources make it harder for new players to enter the market.
“UK insurers have the capacity for only £40 billion ($51 billion) to £60 billion a year, according to pension consultants and asset managers. That’s a fraction of the assets they’ll need to take on in coming years when thousands of UK pension plans will likely aim to do these deals.
“Insurers need to have an ample cash cushion and convince regulators they won’t fail if they absorb these liabilities. Reinsurers that provide capital relief can free up insurers’ balance sheets, though increased regulatory scrutiny could stymie their growth.”
