Covenant Lite #28: Apollo, Blackstone and the Insurance Money Game

Profiling two different approaches to investing insurance assets in private credit

The world of insurance money got a bit more interesting recently when Legal & General (“L&G”)—one of the UK's giants in annuities—struck a deal with Blackstone to manage a portion of its $1 trillion balance sheet.

Announced on July 10 (Link), the strategic partnership will give Blackstone discretion to invest up to 10% of new annuity flows sourced by L&G going forward. Blackstone will reportedly be in charge of providing access to private credit investments to complement L&G’s active fixed income portfolio. L&G aims to enhance yield and diversify its income generation via the partnership.

Of course, private credit-insurance partnerships aren’t new. Apollo led the charge over a decade ago, co-founding Athene in 2009 and now owning it outright.

These days, numerous private credit managers are pursuing insurance partnerships—either by raising separate managed account (SMA) capital directly from insurers, or by acquiring insurance companies outright, following Apollo’s playbook.

But Apollo and Blackstone have arguably pushed the insurance-private credit connection further than most, embedding insurance capital as a core pillar of their asset management growth strategies—making them interesting case studies.

Two Different Approaches

Apollo’s Model, Captive Insurer:

Apollo’s relationship with insurance is more direct than Blackstone’s given its ownership of Athene, a $344 billion dollar insurance franchise that it merged with in early 2022. Apollo consolidated Athene into its corporate structure from 2022 onwards and the two have been increasingly integrated over time.

Today, Athene and other captive insurance subsidiaries account for ~50% of Apollo’s AUM and roughly 50% of pretax earnings, including fee related earnings as well as spread related earnings (their term for insurance underwriting profit, or how much they collect in annuity payments / premiums versus how much they have to payout).

The fees that Apollo charges Athene are fairly reasonable by private credit standards, consisting of a Base Fee between 15bps and 22.5bps and Sub-Allocation Fees with a 4-tier structure depending on the complexity of the investments. Low “alpha” investments like agency MBS or highly rated public debt pay an extra 6.5bps, while high alpha assets like privately originated direct loans pay up to 70bps.

Unlike traditional private credit arrangements, there is no performance fee element on the vast majority of the assets Apollo manages for its Athene subsidiary. This is mostly due to insurance regulations that make charging such fees complicated within the heavily regulated industry. Instead, Apollo’s reward for outperforming is that Athene grows (more AUM, more base fee) and Athene’s profit increases (more spread related earnings).

95%+ of what Apollo invests in on behalf of Athene is investment grade-rated. This is critical for maintaining strong Risk Based Capital (“RBC”) ratios, which determine how much capital Athene / Apollo has to hold against its underlying investments. The weighted average rating is to BBB-rated assets (the lowest rung of investment grade), which is slightly lower quality than the average insurer—but also commands a higher yield.

The underlying liabilities are primarily life insurance and specific types of property & casualty insurance that are longer-dated and modellable, allowing them to match the term and cashflows of their assets to their liabilities.

Apollo’s play is to use its massive origination apparatus to originate private credit and structured securities that it then holds on Athene’s balance sheet. Captive balance sheet enables it to act quickly in size, giving it a strategic advantage over its competitors without a controlled insurance business.

They can can also use Athene’s balance sheet to warehouse assets they intend to ultimately syndicate to other Apollo funds that may be ramping up—or to external groups for a fee.

Blackstone’s Model, Third-Party SMA Relationships:

Blackstone’s approach is different—less entanglement, more contractual flexibility. Instead of owning insurance carriers directly, Blackstone manages insurance capital through separately managed accounts (“SMAs”). They have significant insurance relationships with firms like Corebridge, Fidelity & Guaranty (“F&G”), and most recently, L&G, providing bespoke strategies that cater specifically to each insurer’s investment needs.

Blackstone's fees are typically structured as straightforward management fees—ranging broadly around market levels, often reported in the 20-40 basis point range—without a performance fee component. This aligns neatly with insurers' regulatory and accounting frameworks, which generally discourage complex fee structures.

Blackstone invests insurer capital predominantly in private direct lending, infrastructure debt, commercial real estate loans, and structured assets, carefully managed to fit within insurers' NAIC 1 and NAIC 2 ratings buckets. Maintaining high-quality regulatory ratings helps insurers keep strong RBC ratios, essential for regulatory compliance.

Unlike Apollo’s deep balance-sheet integration, Blackstone maintains independence, which allows scalability without balance-sheet risk. They can ramp or shift investment strategies quickly based on insurer demands without worrying about the capital intensity or regulatory scrutiny of owning the underlying insurers.

Their model appeals particularly to insurers seeking flexibility, rapid scalability, and clear governance separation from their asset managers. However, this model comes with less strategic alignment and potentially more competitive fee pressure.

Pros and Cons of Each Model

Apollo Model – Pros: Permanent, captive capital that’s fully aligned; ability to capture full economics (fees + insurance profit); total control over investment and business strategy; mega-scale enabling unique deals; deep alignment fosters long-term thinking; effectively an in-house client that will not leave.

Apollo Model – Cons: Apollo bears all risks of insurance operations; high regulatory compliance burden; capital intensive (tying up Apollo’s equity in insurance); exposures to market/insurance shocks; lower fee rates on captive AUM; complexity in explaining combined business.

Blackstone Model – Pros: Asset-light growth with minimal capital; risk mostly stays with insurer clients; broad reach to many insurers (diversification); flexibility to add/adjust partnerships; focus on core competency (investing) without running an insurance company; steady fee income with limited volatility; no need to deploy capital to support liabilities.

Blackstone Model – Cons: No control – reliant on clients’ stability and decisions; mandate longevity not guaranteed (contracts can end); no participation in upside beyond fees; must continually prove value to retain/grow mandates; potential fee rate pressure from savvy insurance clients; complexity of serving multiple masters; less singular alignment (client could have competing priorities).

Wrapping Up

Ultimately, Apollo and Blackstone provide two compelling but fundamentally different blueprints for insurers tapping into private credit’s potential. Apollo’s model, built on ownership and deep integration, offers unmatched strategic alignment and stable capital at the expense of higher capital requirements and regulatory complexity.

Blackstone, on the other hand, trades alignment for agility, delivering tailored, scalable solutions with lower inherent risk—but also less direct control over long-term outcomes.

The path insurers choose will say much about their risk appetite, regulatory tolerance, and strategic ambition in a yield-starved financial environment. It will also likely influence the competitive dynamics of private credit for the foreseeable future.

Covenant Lite