Apollo Exposed: Athene Stories reinforce concern either side of the Atlantic about private equity taking over insurers on a dubious basis. We know the outcome in terms of UK Pensions; PIC and Just have recently been bought into by US insurers owned by US private equity.
Two stories broke today in the FT and Bloomberg that validate my prior Athene research. The FT story, drawing on an Athene presentation released Thursday, addresses accusations of conflicts of interest. The Bloomberg article focuses on Fox Hedge LP a large, opaque Athene investment, managed by Apollo and filled with Apollo flotsam and jetsam. I first broke the Fox Hedge story in my January Athene article.
Athene’s presentation attempts to distance themselves from the argument that I and others made, that Athene and Apollo’s relationship is riddled with conflicts. Athene specifically argues that other PE/Insurance companies have far greater related party transactions.
FT highlights Athene’s claim of only 12% related party investments. This dramatically understates the true related party exposure. In my article I reviewed every single line item from Athene’s Q2 2024 purchases and found that 50% had an Apollo affiliation. I may be the only journalist who reviewed each Athene purchase for an Apollo affiliation.
The FT and Bloomberg stories tie together as Athene disclosed Fox as an investment exceeding 10% of capital, but NOT as a related party. How can a fund managed by Apollo which includes Apollo related investments, per Bloomberg, not be considered related party? I raised this point in my article but today Bloomberg brought the receipts. In their reporting Bloomberg also revealed the role of a little-known Luxemburg organization in structuring Fox.
In my January article I noted:
“Fox Hedge LP is a Bermuda registered fund where Apollo Capital Management (ACM) is the Fund Manager. The Q2 purchases are rated AA- and one wonders how debt issued by a hedge fund could justify a nearly risk-free rating.”
When I researched Fox, I only found the Bermuda filing listing Apollo as manager. The Bloomberg story, rigorously sourced, reveals far more issues and 100% validates my concerns. They didn’t, however, name the rating agency who saw fit to award the debt a AA- rating.
I made the same related party argument for AP Grange, Athene’s large Intel-related JV where Apollo owns less than 50%. Though the <50% ownership may have evaded related party status, the JV was critical for Apollo and the deal doesn’t get done without Athene swallowing much of the debt (61% according to Moody’s). Related Party? Absolutely.
While Athene may rely on narrow “related party” accounting rules, far more important are the economic conflicts which exist independent of Apollo and Athene’s bean counters. The economic conflicts ARE what matters, not the narrow accounting rules which, let’s face it, are vulnerable to creativity.
When I look at governance, I consider the process and incentives. For example, Athene’s Chief Risk Officer is also a partner at Apollo. His Apollo role is likely far more lucrative than his Athene role. Is this the proper way to set up governance for an insurance company?
Headlines referred to in Rod’s article
In the UK, the related party transactions can also include pension scheme assets
see William McGrath’s excellent analysis of Aviva’s buy-in of its own pension scheme – https://henrytapper.com/2023/03/08/db-pensions-and-their-wasteful-risk-transfers/
Agreed PensionsOldie. I’d forgotten one so long ago. Tom McPhail is now a trustee of the Aviva Staff Pension Scheme – will remind him of it too.
Henry – do we need to consider if we are being altogether too skeptical?
These large financial “institutions” (as they like to refer to themselves – they’re not really commercial businesses given all of the societal good they serve) know what they are doing, and we do not need to worry about all of this high finance – as was once exulted to me when pleading for an explanation on leveraged LDI before the 2022 debacle, “don’t worry, the banks have got it all sorted”.
Indeed, if one was to read the recent stream of propaganda (I mean public service announcements) coming out of the ABI and large insurers, you’d understand that these institutions are basically there to make pensions safe and they (alone it seems) are providing all of the productive capital to drive forward our great economy.
You could just about be persuaded to believe all of that, were it not for the absence of even one sentence about improving the members’ outcome in the process of transferring the country’s base of stored wealth, and of course the combined havoc from de-risking (dis-investing) the system and the shipping of profits streams to Bermuda.
Ah Bermuda – it used to be such a pleasant place till it became a scoundrel’s playground
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