Athene’s ACRA sidecar management fees triple quarter-on-quarter

As its Athene Co-Invest Reinsurance Affiliate (ACRA) sidecar vehicle begins to scale up, Athene Holding Ltd., the life and retirement reinsurance company majority owned by investor and private equity specialist Apollo Global has seen a tripling of management fees earned quarter-on-quarter.

At the same time, Athene continues to have significant firepower to put to work in the ACRA sidecar, with $1.8 billion of undrawn third-party capital remaining in the sidecar and ready to deploy alongside its own excess equity capital of $3.2 billion and untapped debt of $2.6 billion.

Those figures, of capital available for Athene to deploy into new life and annuities reinsurance deals, is the first glimpse in its quarterly results of how important the ACRA sidecar could become, with the structure making up a significant share of its deal-making dry-powder.

Another glimpse is available through the disclosure of management fees earned by Athene from the ACRA sidecar, as the company took in $9 million in fee income for Q3, a tripling of the $3 million earned in the second-quarter of 2020.

While that’s not a significant figure in itself, especially when compared to the $622 million of net income available to shareholders in Athene for Q3, it’s a sign of the build-up that you’d expect, as the ACRA vehicle gets up to scale.

As we explained a quarter ago, Athene used ACRA alongside its own capital in a massive $27 billion fixed annuity block reinsurance transactionand investment in Jackson National Life Insurance Company, part of Prudential plc.

After that deal, Athene reported that its invested assets related to ACRA noncontrolling interests spiked to almost $24.7 billion, as new deposits of almost $18.3 billion of reserves during Q2, largely related to the Jackson Life deal, added to the premium float accumulated by the sidecar’s activities.

That was achieved with a utilisation of less than half of the third-party capital raised for ACRA, which totalled somewhere around $3.2 billion.

But on the back of it, the management fees earned tripled. Which means that once Athene puts the rest of the ACRA sidecar dry-powder to work, it could see the management fees more than doubling again.

On the other side, Athene and the third-party investors backing ACRA will also be earning some investment returns, as the reserves are leveraged as investment float.

This, alongside the ability ACRA provides Athene to leverage its deal-firepower using third-party capital means the benefits are far greater than the management fee income alone.

But that income from the management fees is all incremental, making the value of the ACRA sidecar and Athene’s venture into third-party capital management using an ILS style vehicle, much clearer to see.