Aflac’s investment office is developing its strategy of acquiring stakes in asset management companies, an approach increasingly appreciated by large investors.
Since 2020, Aflac has allocated $ 6.5 billion to its GP-Stakes strategy through three investments.
The $ 129 billion investment bureau on Wednesday announcement that it had made the third of those investments, a $ 2 billion commitment to Denham Capital to build a new debt platform that will invest primarily in sustainable infrastructure products. Aflac has also committed an additional $ 100 million to the company’s second equity fund.
In return, the insurer obtained a 24.9% minority stake in Denham’s new debt business.
“We expect more of these opportunities to arise,” Aflac chief investment officer Eric Kirsch said on a call Friday. “This will be our third in the last few years, and we expect to find more. We are open for business in this regard.
Denham invests in three main sectors: energy resources, mining and sustainable infrastructure. The deal with Aflac will help the private equity firm get into private debt, particularly for its sustainable infrastructure business, which operates assets such as wind, solar and battery storage.
For the sustainable infrastructure business, the company uses the United Nations Sustainable Development Goals and the European Union taxonomy for sustainable activities as screens before investing, according to Stuart Porter, founder and CEO of Denham.
Kirsch said Aflac was specifically interested in investing in the debt sector because of its broader mandate of remaining primarily in fixed income assets. These days, however, finding returns in the asset class is not easy.
“Interest rates are not going up,” Kirsch said. “I expect the yields to go nowhere significantly higher. We have to work three times to find good solid assets to find some spread. ”
Aflac and Denham began talks about a year ago, according to Kirsch. Now that they have come together, they will partner closely on investments. “It’s Denham’s tenure, but they personalize it for us,” Kirsch said. “At the end of the day, we have oversight, but they’re our experts. ”
Aflac is not the only one operating the GP-stakes business – investors such as Dyal Capital Partners and the Petershill unit of Goldman Sachs have been making big commitments like these for a few years now.
For Aflac, the agreements made included a Allocation of $ 1.5 billion earlier this year at the new commercial real estate finance business of Sound Point Capital Management. Of this allocation, $ 500 million was spent on Opportunity Zone Funding Agreements. Aflac now owns a 9.9% minority stake in Sound Point, which also sold a minority stake to Dyal Capital Partners in 2017.
A year earlier, in January 2020, Aflac had committed $ 3 billion to direct mid-market lender Varagon Capital Partners by acquiring stakes held by certain “former and current partners and affiliates of Oak Hill Capital Management”. At the time, AIG also extended its investment in Varagon.
Going forward, Kirsch said Aflac will likely do more of these deals. “The size of our mandates will make a difference for an asset manager,” Kirsch said. “By taking a share of the capital, it strengthens the company. ”