00:00Emily, I guess at first glance, it's like, well, of course, P.E. buys an insurer and then puts more
00:04insurance assets into private capital type investment.
00:07So why do we care? Why did they take a look at this specifically?
00:11Well, so they took a look at this specifically because there's actually not a lot of work about studies on
00:17the actual holdings of life insurance firms writ large.
00:21We know that since like almost 100 years ago, life insurance firms have been investing in private placements, a type
00:28of private credit, you could call it.
00:30That's typically investment grade. It's not registered with the SEC.
00:34So it's a little bit more in the dark than just a public bond, for example.
00:39But this study specifically singles out a rise in a very specific kind of private placement that specifically insurers backed
00:48by private capital firms, Apollo, KKR, just to name a few, are now investing in.
00:53So just in the last few years, you could see on that chart that was just pulled up, they've increased
00:57their holdings in ABS private placements and financial private placements.
01:02And they've done it at a faster pace than those insurance firms that aren't owned by these alternative asset managers.
01:07I mean, I was just speaking with a mass mutual CEO at Milken, and he basically was like, look, we've
01:12been doing this kind of stuff since the 1800s.
01:14But you note in this study that they say, look, this increases the liquidity risks.
01:19Why do we care about the liquidity risks?
01:22Because isn't this presumably stuff people hold for like 100 years anyway?
01:26Does the timeline really, is the duration really a problem?
01:29Yeah, no, it's a good point.
01:30And the authors definitely note in this study that, look, this is a limited set of data.
01:34We're only looking at, you know, the last decade or so.
01:37However, I think they're more just raising a flag here that these kinds of private placements are a little bit
01:45more intermingled with the broader financial system.
01:48So instead of an insurance company lending for the long term to an infrastructure company, a utilities company, we're now
01:55seeing that they're more lending to another financial firm that then does lending.
02:02So think, you know, a private credit firm itself.
02:04So the insurer, the researchers here are kind of just flagging that, you know, we're not saying that there's a
02:10risk right now, but that it's something to keep an eye on.
02:14Right.
02:14That potentially we could see a broader spillover if there is a broader credit crunch.
02:18It feels like something that also might get the eye of regulators.
02:20They're already paying attention to private credit more, it feels like, in the latest sort of concerns about headlines.
02:24Yeah, exactly.
02:25And I think we're going to see more alternative asset managers scoop up insurance assets.
02:30So, again, it's just something to watch here of, like, how exactly are they changing the investments?
02:35They had flagged two interesting ones.
02:36One of them, I don't know if people know this, the NBA, they borrow in private placements.
02:42So via Hardwood Funding, LLC, that's their kind of league-wide credit facility.
02:46So a fun fact there that insurance firms are actually lending to the NBA.
02:51I love that because, you know, if you have an insurance policy, like, little do you know, you're backing, like,
02:56the hot NBA asset.
02:58Emily's such a great story.
02:59I really recommend everyone go out and read it.
03:00That is, of course, Bloomberg's Emily Grafeo.
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