Carlyle Group Inc. is exploring how to capture a piece of a multibillion-dollar corner of finance that’s changing who writes private-pension checks to millions of retirees.
With workers living longer and markets in flux, employers worldwide are trying to get traditional pensions off their books. They’re turning to so-called pension risk transfers — paying insurers to take on their financial obligations to pensioners.
Carlyle is investigating a potential role in the arcane yet burgeoning business and is interested in the UK market, people familiar with the matter said. A spokesperson for the Washington-based firm declined to comment.
Carlyle executives are in early talks over the ways it could arrange financial support for insurers that assume pension liabilities, the people said.
Many of these insurers strike deals with other insurers that absorb some of the risks. That’s creating an opening for private equity firms to back so-called reinsurers that can take over insurers’ obligations.
Carlyle is still studying the market and could opt to stay out of it, the people said. Still, Carlyle’s interest reflects private equity’s transcendence beyond its buyout roots and into an array of alternative investments.
The firm is angling for deeper ties to insurers in particular, as they could entrust it with new cash. Carlyle raises money to provide financing and is one of the world’s biggest managers of collateralized loan obligations. Insurers are turning to such investments for cash streams and hoping that more complex securities can deliver some extra returns along the way.
Carlyle Chief Executive Officer Harvey Schwartz revealed his ambitions in November when he said the firm anticipates “substantial growth” from insurers and expects credit to be “significantly larger over time.” It already holds a minority stake in Bermuda reinsurer Fortitude Re, which has $100 billion of assets.
Carlyle isn’t expected to create insurance contracts using its own balance sheet. Its top leaders have repeatedly stressed the firm has no desire to become an insurer — or be regulated like one.
Carlyle joins other competitors that are looking at how to play a role in the pension risk transfer market, according to lawyers and Wall Street executives.