Alleghany Corporation, the insurance and reinsurance holding company with property and casualty subsidiaries including reinsurer Transatlantic Re, has purchased a stake in alternative investments asset manager Ares Management LLC, a partnership which positions them to serve the converging reinsurance and capital markets.
Under the terms of the deal, Alleghany has invested $250 million for a 6.25% equity ownership interest in Ares and has also committed to invest up to $1 billion of capital in existing and new Ares investment strategies.
Ares Management is a major alternative asset manager, with around $66 billion of capital under its management. Through the new relationship, Alleghany is looking to participate in Ares business and benefit from its investment expertise by improving the returns of the capital it commits to Ares through its alternative strategies.
Buying into an asset manager of this size also gives Alleghany, and its reinsurance subsidiaries, a ready-made asset management platform which could be leveraged for the growing convergence space, where reinsurance and capital markets collide and third-party capital from investors is put to work.
“Ares has over 15 years of experience making successful credit-focused investments across asset classes,” said Weston Hicks, President and Chief Executive Officer of Alleghany Corporation. “The Ares senior management team has built an impressive business and we believe the firm has excellent long-term prospects. We are excited about the opportunity to work closely with Ares to enhance Alleghany’s fixed income investment returns, while helping Ares expand its presence in the insurance industry. In addition, we believe our two organizations will be well-positioned to serve the converging reinsurance and capital markets.”
The comment above from Hicks shows that Alleghany is fully aware of this opportunity that it has now created for itself in the third-party capital and reinsurance convergence space. Ares could very easily establish a fund, or other structure, to begin attracting third-party capital which could be put to work within Alleghany’s re/insurance businesses.
“We believe this strategic transaction with Alleghany, a highly regarded, well-run company with expertise in specialty insurance, asset management and opportunistic equity investing, will greatly benefit our entire platform,” commented Tony Ressler, Senior Partner and Chairman of the Executive Committee of Ares Management. “We are thrilled to have Alleghany join the Abu Dhabi Investment Authority as a strategic investor to meet the diverse needs of our blue chip investor base across more than 100 vehicles. In working closely with Alleghany’s leadership team, we recognized how similar our corporate cultures are, which further confirmed the enormous potential of this relationship.”
There are some very interesting partnerships emerging in reinsurance that could result in major platforms for managing third-party capital, if those involved target that. From the comments above this partnership certainly sees the opportunity to serve the reinsurance and capital markets convergence space.
This tie-up between a major re/insurance holding company like Alleghany and a large alternative asset manager like Ares could be an interesting prospect for the ILS sector and one worth watching closely. It will be interesting to see whether they launch an ILS fund or even look to partner with a smaller existing ILS fund manager to get into the market more quickly.