KKR has agreed to buy Global Atlantic, the former life insurance unit of Goldman Sachs, in a $4.4bn deal that underscores how private equity firms are taking over the role of traditional financial institutions as lenders to millions of ordinary American households and businesses.
The buyout group is using its own balance sheet to fund the deal, which will boost KKR’s assets under management by a third, to $279bn. It will more than triple KKR’s war chest of “permanent capital”, which is seen as a holy grail in asset management, because the money can be invested in perpetuity and never has to be returned to clients.
“Insurance providers play a critical role in supporting financial security for millions of individuals,” said KKR’s co-chief operating officers, Joseph Bae and Scott Nuttall, in a statement. “This transaction . . . significantly grows our position within the insurance industry, which has been increasing its exposure to alternative investment strategies.”
KKR is best known for its buyout arm, which launched bold takeover bids for companies as enormous as food and tobacco conglomerate RJR Nabisco, striking fear into public company executives during the 1970s and 1980s.
But after diversifying beyond these roots, about a third of KKR’s business now consists of lending money to other companies, taking over a role once performed by banks and insurance companies, and making it a central part of the US credit system.
Wednesday’s deal means that the buyout firm founded by Henry Kravis will follow a trail blazed by rival Apollo Global Management, which became the first private equity firm to branch into insurance when it set up life insurer Athene Holding in 2009.
The arrangement has attracted controversy because of the enormous fees that Apollo reaps from the insurer, which is now listed on the stock market with an equity value of $5.8bn.
Global Atlantic was set up by Goldman Sachs in 2004, and spun out of the investment bank nine years later to a broad group of shareholders that includes members of the company’s management team. Allan Levine will stay on as chairman and chief executive after the deal completes early next year.
KKR said that some of Global Atlantic’s 1,500 shareholders would retain an equity stake in the insurer, while others would be bought out at book value, which was $4.4bn at the end of March.
The buyout group said it might raise equity to fund the deal, and that it would not be using any client funds.