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00:00When most people think of JAB, they tend to think, of course, of consumer products.
00:04About 25% of their portfolio right now is insurance,
00:07and you are the pillar of what seems to be their effort to build that out.
00:12Why?
00:14It's very simple.
00:15Consumer businesses do very well when interest rates are low,
00:18and insurance businesses do very well when the scenario is inverted.
00:22So there's a direct correlation between the diversification benefit
00:26between consumer businesses and insurance businesses.
00:28So let's talk about this mashup.
00:31I mean, we didn't have it there in the top,
00:32but a lot of people know you from American Equity, from AEL,
00:36and what was a pretty novel concept back at the time.
00:39And, of course, now we see everybody trying to do that.
00:42Obviously, Apollo with Athene and quite a few of the other alternative asset managers
00:46that they haven't either bought or partnered with an insurance provider.
00:49They're certainly looking, too.
00:51What is the difference between what you're doing at JAB
00:54and maybe what we're seeing with, say, like an Apollo with Athene, for example,
00:57not to pit you guys against each other?
00:59No, everyone's got a different approach to this.
01:00Our approach is we bring permanent capital, capital at things for decades.
01:04That can take a very long-term horizon.
01:07Private equity, the alt management space, is very good at what they do,
01:10but they have one flaw, time.
01:12They run out of time.
01:13They invest for a finite period of time.
01:15When you have permanent capital, you look at multiples of invested capital.
01:19So you take the benefits of IRR, multiply that by duration.
01:22We're long-duration investors.
01:24Give me some sense, though, of the structure.
01:26We introduced you with 1823 Capital.
01:28So my general understanding is you're taking the annuities that you're getting from the insurance business at JAB.
01:351823 is investing that money?
01:37Is that the idea?
01:38That is correct.
01:39Okay.
01:39And then that feeds back into the JAB insurance business.
01:43Yes.
01:43So 1823 has an anchor investor.
01:45It's JAB Holdings.
01:46Through its insurance business and the holding company as well, as we may look at different opportunities beyond consumer.
01:52And that has allowed us to build 1823 around three pillars.
01:56The first pillar is advice.
01:58Risk management for pension funds, for insurance companies, with JAB being the anchor investor, as I mentioned there.
02:05The second pillar is really around credit products that are more around asset-backed lending, looking at collateral,
02:11going through the fundamentals of credit work over a long period of time.
02:15And this time it's different.
02:17To quote a very famous book, really not so.
02:20It's not very different.
02:21Credit goes through cycles.
02:22We're in a very long cycle.
02:23And the third is owning permanent businesses, a way of owning companies that can go private without having to be
02:31on the private equity clock.
02:33You said in the past, I've heard you talk about, that kind of the future of insurance is permanent capital.
02:38There are some people that look at the private asset space right now and say there's a lot of risk
02:43associated with that that wouldn't necessarily have been associated with traditional government bonds, investment-grade bonds,
02:48that insurers would traditionally traffic in at a high degree.
02:52What is the risk-adjusted sort of proposition there for being more invested in alternatives rather than into bonds?
02:59I'm glad you asked me the question.
03:01You always have to look at return per unit of risk.
03:04And the entry of alt managers into the insurance space has resulted in underwriting illiquidity and underwriting complexity.
03:13So when you look at those return in private markets, you know, private markets is a $40 trillion market.
03:19It's a very big market.
03:20There is leveraged finance, which is one part of the market.
03:23There's asset-backed lending.
03:25There's middle-market sponsored lending.
03:27We're relatively negative on sponsor lending in the middle market.
03:32Why?
03:32Because the world doesn't need another manager jumping in.
03:35That's why we didn't jump in there.
03:36But we look at working capital finance.
03:38You look at supply chain finance.
03:40Anything that's asset-backed, that's collateralized, that can be, you know, structured well.
03:45So you only have to look at four S's.
03:47How do you source?
03:48You know, more and more companies are private.
03:50There aren't that many public companies out there.
03:52And frankly, investment-grade credit is where you're buying unsecured assets right now, right?
03:59So we are negative on investment-grade corporates as well.
04:01Where we are positive is on good quality collateral that can be structured, that can be bought at the right
04:08price.
04:08And then you're focused on the downside.
04:10You're looking at the downside scenarios, not just hoping for upside.
04:15Insurance is about managing convexity of risk.
04:18It is.
04:21Are your investment practices, more importantly, your sourcing and underwriting practices on the investment side,
04:29does that match up with what I would assume is the relatively conservative underwriting standards that the insurance business would
04:36have?
04:36What has happened is with the entry of alt managers in this space, the cost of funding, the cost of
04:43those liabilities, that insurance funding has gone up 100, 150 basis points over the last decade and a half.
04:49So now you can't only invest in boring public fixed income.
04:55You have to invest in pockets of private markets.
04:58But where you get those four S's right, you source them, you structure them, you're doing surveillance on them, and
05:04then you're syndicating the risk out for price validation.
05:07I think a big risk in this market is there is no price validation unless you syndicate to others and
05:12there are other buyers of the risk.
05:14Everyone could love their own risk.
05:15But until someone buys a risk at the same price that you bought it, there's no validation.
05:19I want to talk about some of your acquisitions or pending acquisitions utmost.
05:23What's happening?
05:24That was supposed to close in the first half of this year?
05:25We're working towards that, yes.
05:27Our plan was to close in the second half of the year.
05:29Second half, excuse me, sorry.
05:30No, no, not at all.
05:31And we're looking forward to closing it.
05:33That is an imminent.
05:34That imminent.
05:34You're just waiting on the regulators to get that done.
05:36So with regards to what you would be interested in buying going forward, well, first of all, would you actually
05:42buy outright a public life insurer?
05:45Probably not.
05:46No.
05:47I think we've got a really good platform right now.
05:49We've got Prosperity in the U.S. focused on the retail market where we've focused its energies.
05:53We think there's a retirement crisis in America, a real retirement crisis in America that's growing, and there needs to
06:00be a solution.
06:01The Trump administration has talked about things like the Australia model, which we are highly supportive of.
06:05In addition to that, the pension business in the U.K. is very interesting to us.
06:08And then we are an insurer for other insurers through reinsurance.
06:13That's how we will grow.
06:15We're bringing on a team very shortly that's going to be building out our reinsurance practice because we have the
06:20capital and the way with all with that permanent capital to be a backstop to public insurers.
06:26Insurance is a business that should not be very public.
06:28It should be in permanent hands.
06:31What about a private credit arm?
06:33I think about Apollo, and they have a third-party private credit arm.
06:37Is that something that you're considering?
06:40Do you need it?
06:41So we have pockets of private credit that we like, that we've built within 1823 Partners.
06:471823 specializes in real estate, for example, across the board.
06:50We're a go-anywhere firm.
06:52Invest in credit.
06:53Invest in equity.
06:54In real estate.
06:56Thematically, there are other parts of the sectors we like, as I mentioned, supply chain.
06:59So we will do private credit, but not sponsor-backed private credit directly.
07:04We're sidestepping that part of the market because we think it's picked over.
07:07When you say supply chain, what are we talking about?
07:09We're talking about transportation or what?
07:11We're talking about, for example, take the AI boom right now.
07:14There are parts of the AI boom which are at a binary risk.
07:16We don't underwrite binary risk.
07:18You know, we have to return capital back to policyholders or family offices over time.
07:24But what we can do is the chipsets that are going into that, they need an off-balance
07:28sheet financing.
07:30The structures around that, how to structure that in a manner that it's not winner-take-all,
07:35that you're off the risk before it really bears out.
07:38That's how we do supply chain.
07:39With regards to the AI infrastructure build-out, there are insurers that are playing in this
07:43space.
07:44Some probably have to just because that's what their clients want.
07:46But is there an insurable business model, if you will, for the AI infrastructure build-out
07:55or is it just fraught with that potential risk?
07:58Taking binary risk, like development risk is binary risk.
08:02You can have winner-takes-all in this market.
08:05And a scenario where a hyperscaler can pick winners and losers is not something we want
08:12to underwrite.
08:13What we want to underwrite is where we have certainty to cash flow and we're off the risk.
08:18We're looking at how quickly we can get out of the risk position, not be stuck with it.
08:23I do have to ask you about AEL.
08:25I mean, you built that up.
08:26You sold it to Brookfield.
08:28And now I see you kind of doing this again with JAB.
08:31Obviously, a little bit different because it's a family office, so it's a little bit different.
08:33But it raises a lot of questions as to whether sort of this mashup between alt managers and
08:39insurers, whether that's to kind of reach some degree of maturity.
08:43I mean, how much life is left in this sort of model?
08:46Or have we just seen the best of what this has to offer?
08:49The model which is fee-driven, focused on bigger is better, doesn't work in my humble view.
08:55The model where you say I'm going to compound returns, and this is a stable form of financing
09:01along with permanent capital.
09:02The equity-bind insurance company from a vehicle like JAB or family office investors, that
09:07model has a lot of legs to go.
09:09Why?
09:09Because you've got an alignment between the promise, which may be a 10-, 20-, 30-year
09:14promise, and the capital, which is 30-year capital.
09:17Alt managers don't have 30-year capital.
09:18Public markets don't have 30-year patients or 40-year patients.
09:21I think that model is the life insurance 3.0.
09:25All right.
09:25All right.
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