Carlyle signs new consultancy deal with Fortitude Re

Carlyle Group inc

cg -2.87%

has entered into a comprehensive new advisory agreement with reinsurer Fortitude Re, which will significantly increase the private equity firm’s assets under management.

Carlyle will receive a recurring fee based on all of Fortitude Re’s assets for helping the reinsurer with acquisitions and identifying new growth opportunities, the companies plan to announce on Thursday.

Carlyle, which has $301 billion under management, expects its credit segment’s fee-bearing assets to increase by $50 billion and its annual fee-related revenue by $50 million when the new agreement goes into effect on Friday.

Carlyle has also raised $2.1 billion for Fortitude from the reinsurer’s existing investors and will provide up to $150 million from its balance sheet for the grand total.

In 2018, Carlyle acquired a 19.9% ​​stake in Fortitude, which was formed to reinsure legacy assets of American International Group inc

The following year, the company announced it would be affiliated with Japanese insurance company T&D Holdings inc

to take a majority stake in the Bermuda-based reinsurer.

The recent deal is significant for Carlyle. The lending business ended 2021 with $52 billion in fee-related assets and the company reported $598 million in fee-related income for the full year.

The move is the latest evidence that the largest private equity firms are looking to the insurance industry as a source of so-called permanent capital that pays fixed fees and doesn’t need constant replenishment.

Follow in the footsteps of Apollo Global Management inc,

Companies like KKR & Co., Blackstone inc

and Brookfield Asset Management have addressed insurers’ need to generate returns on their cash that exceed what publicly traded corporate and government bonds can offer. They have each developed their own insurance strategies as well as an ever expanding range of products designed specifically for insurance companies.

A significant portion of Fortitude’s assets are also invested in Carlyle products.

The new agreement moves Carlyle toward some of the goals set by Chief Executive Kewsong Lee last year: to grow global loan assets to more than $80 billion by 2024 and to double the segment’s fee-related revenue.

In a unique twist on the typical management contract, the fee Fortitude will pay Carlyle is based on the reinsurer’s overall profitability. The other investors who are putting more money into Fortitude will also take a minority stake in the advisory entity that Carlyle is establishing.

“We needed to have a fee structure that was really tied to Fortitude’s performance,” said Carlyle Head of Global Credit Mark Jenkins. “It creates a virtuous circle because ultimately we have an incentive to grow in a way that benefits our investors.”

write to Miriam Gottfried at Miriam.Gottfried@wsj.com

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https://www.wsj.com/articles/carlyle-signs-new-advisory-deal-with-fortitude-re-11648720800?mod=rss_markets_main Carlyle signs new consultancy deal with Fortitude Re

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