U.S. investment manager BlackRock (BLK.N) is buying Swiss Re's (SRENH.VX) European private equity arm, marking the second deal for a private equity fund manager in as many days as sellers contend with a new regulatory landscape and tough trading.
Swiss Re's deal to sell its $7.5 billion private equity and infrastructure fund of funds business follows hot on the heels of HarbourVest Partners' agreement to buy Amsterdam-listed private equity fund of funds business Conversus Capital (CONCA.AS).
Both Swiss Re's private equity business and Conversus invest in a portfolio of private equity funds from firms like Blackstone (BX.N), CVC CVC.UL and KKR (KKR.N), which in turn plough that capital into companies via leveraged buyouts and minority investments.
The deals point to an industry in flux as insurers and other financial institutions streamline their businesses and reduce exposure to private equity in the face of new regulations that will make risky assets more expensive and so less profitable to hold.
Meanwhile, specialist fund managers are taking advantage of tough trading conditions and the discounts at which assets trade to pick off weaker rivals and consolidate their positions in the fund of funds business.
BlackRock said the terms of the all-cash deal were not being disclosed. It expects the deal to be completed by the end of the third quarter and be at best modestly accretive to its 2012 earnings.
The deal will see Swiss Re Private Equity Partners (SRPEP) AG, which had $7.5 billion in total commitments at May 31, outsource the management of its investments to BlackRock Private Equity Partners (BRPEP), an arm of its Alternative Investors division, which had $110.4 billion in assets at end March.
Swiss Re said in a separate statement that it would continue to hold the underlying investments in SRPEP and plans to make further private equity investments mainly through this platform.
The transaction will have no material impact on the earnings estimates for Swiss Re, said Sarasin analyst Martin Schwab.
"Nevertheless, we regard the outsourcing as expedient as it allows Swiss Re to further focus on its core business," Schwab said.
BRPEP head Russell Steenberg will lead the combined unit, while SRPEP Chief Executive Christian Hinze will join BlackRock as deputy head of the combined business.
Conversus said on Monday it had agreed to sell itself to HarbourVest for $1.4 billion, which represented a 14 percent discount to its asset valuation.
The sale followed a strategic review by Conversus, which had last year put a halt to new private equity investments and pledged to return money to its shareholders.
This article is copyrighted by Reuters
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