Kimberley Kaplan-Gross on Growth Opportunities for Insurance Companies

Our fund formation partner Kim Kaplan-Gross speaking to FundFire about the increasing commitments by insurance companies to private equity managers and separately managed accounts, noted how managers use SMAs as a tool to “deepen relationships.”

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From the article:

Separate accounts generally offer managers opportunities to win new investors, with many using the structures as a test drive for possible future investment in funds, she says. 

“[Managers] see it as a great way to deepen relationships,” she says. “It’s a methodology by which the parties get comfortable with each other.”

But few standards have emerged on how managers and investors structure these relationships, with some simply mimicking investments in an existing fund, while others aim for a completely custom portfolio, Kaplan-Gross says. That lack of standards allows managers leeway in tailoring structures for insurer needs, but also requires careful consideration and execution of deal allocation policies between funds and separate accounts, she says.

These separate account structures also entail a heavier administrative and operations burden for managers, especially firms that pursue multiple custom vehicles at once, she adds.
“The firms that do this best have robust back office teams that can manage these entities, especially around calculating separate account management and carry fees,” Kaplan-Gross says. “It’s important to have a strong back office team that can handle the volume of that effort. You’re not just allocating all of the fees and expenses pro rata.”