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With Third GP Stakes Deal Since 2020, Aflac Is ‘Open for Business’

Under CIO Eric Kirsch, the insurer’s investment office is looking to buy up minority stakes in asset managers.

The investment office at Aflac is growing its strategy of buying stakes in asset management firms, a move increasingly popular among large investors.  

Since 2020, Aflac has allocated $6.5 billion to its GP-stakes strategy across three investments.  

On Wednesday, the $129 billion investment office announced that it had completed the third of these investments, a $2 billion commitment to Denham Capital to build a new debt platform that will primarily invest in sustainable infrastructure products. Aflac also committed an additional $100 million to the firm’s second equity fund.  

In exchange, the insurer got a 24.9 percent minority equity interest in Denham’s new debt business.  

“We’re expecting more of these opportunities to come around,” Aflac’s chief investment officer Eric Kirsch said during a call on Friday. “This will be our third one in the last few years, and we would expect to find more. We’re open for business in that regard.”   

Denham invests in three major sectors: energy resources, mining, and sustainable infrastructure. The deal with Aflac will help the private equity firm move into private debt, specifically for its sustainable infrastructure business, which taps into assets like wind, solar, and battery storage. 

For the sustainable infrastructure business, the firm uses the United Nations’ Sustainable Development Goals and the European Union’s taxonomy for sustainable activities as screens before investing, according to Stuart Porter, founder and chief executive officer at Denham.  

Kirsch said that Aflac wanted to specifically invest in the debt business because of its broader mandate to stay primarily in fixed-income assets. These days, though, finding returns in the asset class isn’t easy.  

“Interest rates are not going up,” Kirsch said. “My expectation is that yields aren’t going anywhere sharply higher. We need to work triple time to find good solid assets to find some spread.” 

Aflac and Denham began deal talks about a year ago, according to Kirsch. Now that they’ve come together, they will partner closely on investments. “This is Denham’s mandate, but they’re customizing it for us,” Kirsch said. “Ultimately, we have oversight, but they’re our experts.” 

Aflac is not alone in tapping into the GP-stakes business — investors including Dyal Capital Partners and Goldman Sachs’ Petershill unit have been making big commitments like these for a few years now. 

For Aflac, past deals have included a $1.5 billion allocation earlier this year to Sound Point Capital Management’s newly created commercial real estate finance business. Of that allocation, $500 million went toward opportunity zone financing deals. Aflac now holds a 9.9 percent minority interest in Sound Point, which also sold a minority stake to Dyal Capital Partners in 2017.   

A year prior, in January 2020, Aflac committed $3 billion to middle market direct lender Varagon Capital Partners by acquiring stakes owned by certain “former and current partners and affiliates of Oak Hill Capital Management.” At the time, AIG also extended its investment in Varagon. 

Moving forward, Kirsch said Aflac will likely do more of these deals. “The size of our mandates will make a difference for an asset manager,” Kirsch said. “By taking some equity stake, it strengthens the business.” 

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