Aberdeen Standard Investments (ASI) and Phoenix Group (Phoenix) have established a private markets fund financing strategy which is tailored to Phoenix’s financial objectives as an insurer.
It will initially be funded with GBP500 million of capital as it enters the market, which will be transferred from liquidity funds and short duration funds, in a strategy that seeks to generate increased returns from illiquidity premia, whilst assuming the least amount of credit risk.
The strategy focuses on providing investment grade, short duration loans to private markets funds in the earlier years of their life. Given the security on offer from diversified, institutional investor bases, in conjunction the short duration nature of the underlying loan tranches, Phoenix and ASI have created a solution that is well suited to Solvency II capital requirements, while achieving the objective of capturing the illiquidity premia that private markets can offer, without assuming undue credit risk. This is a ground breaking strategy for the European insurance market, in a space traditionally dominated by banks.
The strategy will be managed by Ian Shanks, a founder of the fund financing strategy in the banking market from his time at Bank of Scotland, where they established the strategy from 2000 onwards and where he built a business in excess of GBP10 billion across over 50 deals.
Peter McKellar, Aberdeen Standard Investments’ Global Head of Private Markets, says: “We are excited to be working with Phoenix on this private markets fund financing strategy. Between our two businesses, and our close collaboration with some of our valued banking partners, we have created a solution that can capture private market illiquidity premia and is tailored to helping insurers achieve their financial objectives, particularly with the establishment of a credit rating methodology that enables us to determine credit risk.”
“This builds on the foothold we have established in the market following our acquisition of Hark Capital. This means that we can now offer a complete private markets fund financing solution, whether targeting facilities secured against institutional investor commitments in the earlier years of a fund’s life, or secured against a fund’s net assets in the later stages.”
Neo Mooki (pictured), Aberdeen Standard Investments’ Investment Director, says: “We are delighted to have worked closely with our strategic partner Phoenix on this innovative fund initiative. The mandate is a strong example of the ongoing close collaboration between our two firms and an opportunity to develop a highly specialised mandate with a sophisticated investment sponsor. We believe this development could also lead other insurers to explore allocating capital to a private markets fund financing strategy, an area that has been overlooked by most insurers to date.”
Henrik Wijkander, Phoenix Group’s Head of Investment Risk, says: “This mandate was developed to access incremental illiquidity premiums across shareholder backed funds requiring high degrees of flexibility and limited appetite for market risk exposure. This investment marks an important step for us in our quest to deliver improved risk adjusted returns for shareholders and policyholders. We are delighted to have worked with ASI to create this new mandate and leveraging our strategic partnership.”
