Friends Life, the UK pensions, investments and insurance company, has replaced AXA Investment Managers with BlackRock on a £365m private loan portfolio, and is separately understood to be near to awarding a segregated UK senior debt mandate for up to £700m, CoStar News can reveal.
Mark Versey, chief investment officer at Friends Life, told CoStar News this afternoon: “We are pleased to announce the appointment of BlackRock to take over the management of an existing £365m private loan portfolio previously managed by AXA Investment Managers. The asset portfolio is used to back both our with-profits business and our annuity business within the Friends Life Group.”
Friends Life declined to offer more details on the private loan portfolio and BlackRock declined to comment.
Separately, Friends Life issued a request for proposals (RFP) at the turn of the year which comprises two pools of capital for UK senior debt investment, for which the UK insurance company is seeking a senior loan originator prepared to co-invest alongside.
The first pool of capital, for which between £300m and £500m will be allocated, is sourced from Friends Life’s annuity book, with a mandate to invest in small, granular loans – of around £25m to £50m – over long-dated, fixed rate durations, from 10 years and above to liability-match Friends Life’s annuity capital.
The second pool, for which between £100m and £200m of capital will be allocated from Friends Life’s with-profits book, carries a mandate to seek shorter-term floating rated senior debt investments.
A spokesperson for Friends Life told CoStar News: “We can confirm that these tenders are out at the moment. We have different tenders out in the marketplace at different times but do not comment on those until a decision has been made.”
Friends Life has stipulated that its preferred manager of the £400m to £700m segregated UK senior debt mandate would be an established origination team which would co-invest capital alongside its own.
This strict criterion is understood to have narrowed the pool of potential winners, as investors like BlackRock, do not take proprietary risk.
Likely bidders, therefore, include M&G Investments and AXA Real Estate, although a wider pool of bidders have submitted including private equity funds – all of which could co-invest with Friends Life.
In the RFP, Friends Life asked bidders to submit guidelines as to what returns could be achieved for the two pools of capital, and how long it would take to invest.
Likely suggested margin guidelines for longer-dated annuity capital is around the low 200 basis points, with the shorter-dated with-profits capital around high 200 bps to low 300 bps. Longer-dated senior debt is starting to price inside shorter dated due to the greater volumes of longer dated lenders, driving down price.
When Friends Life selects the mandate for the up to £700m senior debt mandate, it will leave just two notable UK life insurance companies yet to take advantage of the immense lack of senior debt supply to replace the declining appetite among banks, Standard Life and Scottish Widows Investment Partnership.
Standard Life is in the process of setting up its own senior debt origination team in-house, while SWIP, a subsidiary of Lloyds Banking Group, is expected to eventually enter the debt markets, although likely higher up the risk-curve than its parent company’s lending appetite.