Fox-Pitt, Kelton, the Swiss Re-owned investment bank, is close to finalizing a management buyout from its parent. An announcement was expected on Feb. 10, but had not arrived at the time of going to press.
The buyout is expected to involve two outside investors, one of which is Chris Flowers, who runs private equity fund JC Flowers.
Selling FPK appears to be a change of heart for Swiss Re. It bought the investment bank in March 1999, after originally announcing its intention to do so in December 1998. At the time the firm said the purchase complemented its desire to lead the convergence of the insurance and financial markets. The company also said the combination could lead to the development of new financial products.
Swiss Re has continued to combine financial and insurance techniques. It is a regular issuer of catastrophe bonds, which securitize and transfer catastrophe risks to capital markets investors. It has also succeeded in transferring other risks to investors, such as mortality and credit risk, using securitization. But it appears FPK is no longer a part of this strategy.
It is unclear what Swiss Re’s motives are for selling the bank. The reinsurer has remained tight-lipped about FPK’s future. According to news reports, Swiss Re put FPK up for sale in December last year, but the company never announced this officially and declined to comment on the matter. The company also declined to comment on the pending management buyout at FPK.
FPK’s life under Swiss Re has not always been smooth. The firm lost several analysts to rival investment bank Keefe, Bruyette & Woods in 2004.
“FPK has had its ups and downs,” says Tim Dawson, analyst at Swiss investment bank Helvea. “Quite a few people left for KBW and there was a bit of management turmoil,” he says.
However, Dawson believes this is unlikely to have had much effect on Swiss Re. He says it will make little difference to Swiss Re if FPK stays or goes. “From a financial point of view it is completely irrelevant,” he says. “FPK is such an irrelevance to Swiss Re that I’ve never bothered asking them about it.”
Nevertheless, he thinks the buyout could benefit FPK. “A business like Fox-Pitt, Kelton is better off owned by its employees than a large entity,” he says.