Goldman Sachs has struck a tremendous blow with its takeover of NN Investment Partners, the asset management arm of Dutch insurer NN Group, which was announced a few days ago. At a stroke, it adds EUR300 billion of predominantly European assets under management to its portfolio.
With a total of now nearly EUR600 billion of assets under management in Europe, Goldman Sachs not only becomes a serious discussion partner, but also opens doors for its wide range of alternative investments.
Indeed, the investment industry in Europe - and especially institutional investors such as insurers, pension funds and sovereign wealth funds - has been in the grip of a “search for yield” for several years. This has been prompted by the European Central Bank’s policy of keeping interest rates artificially low, with the result that institutional investors are turning to alternative investments. This is because these generally yield higher returns and also provide a greater spread of risk in investment portfolios.
Search for yield
The search for yield, combined with stricter laws and regulations, caused NN Group, the Dutch insurance group, to announce last week that it is selling its asset management branch to Goldman Sachs Asset Management (GSAM) for 1.7 billion euros. Part of the deal is that GSAM will become NN Group’s so-called preferred supplier for at least ten years. Indeed, its current subsidiary, NN IP, manages 163 billion euros of the insurance group’s book.
The investments that NN IP makes for its parent company are mainly debt securities, such as government bonds and credits. But such strategies tend to offer too little return. Moreover, NN Group’s top executive David Knibbe told Investment Officer, for the insurer it is increasingly a key question what the consequences of asset allocation are for solvency and capital requirements. This is because the European regulator is setting increasingly high(er) requirements for this in the context of insurers.
For example, the Solvency II capital requirement for equities is very high for insurers, so many parties have only allocated 5 percent of their portfolio to these assets. This is a specifically European phenomenon, against which the French have now started a lobby that we support. “You want the capital requirement to be reduced at this point, so that as an insurer you can invest more in equities because that fits well with a large balance sheet with long-term liabilities,” said Knibbe.
Balance sheet
The NN chief continued: “So in investing as an insurer, we are not only concerned with the attractiveness of the investment, but also what it does on the other side of the balance sheet. That’s the insurer’s area of expertise, and we will keep that in our own hands.” GSAM, which through its acquisition of NN IP, becomes the world’s largest party as a manager of insurers, will be involved in the management of the balance sheet as an advisor.
At the same time, GSAM’s additional expertise in alternative investments is very welcome, Knibbe said. For example, GSAM has USD2,300 billion in assets under management worldwide. About USD 375 billion of that is focused on alternative investments, such as private debt, private equity, infrastructure, secondaries and the possibility of co-investment in the real economy. These are types of investments that are becoming increasingly important to institutional investors, such as insurance companies and pension funds. Gerald Cartigny, managing director of GSAM Benelux, said: “Our offering covers the whole spectrum, and also has the depth that you as a client want. If you don’t have 20 to 30 years of experience in these markets, it’s very difficult to get in.”
NN Investment Partners is particularly successful in Belgium with its multi-asset strategies, green bonds and sustainable and impact equity strategies. These products and strategies are mainly on the shelf at ING Bank, which belonged to one and the same company before the 2008 crisis. The above strategies are also offered by NN IP Belgium to customers in Luxembourg.
The acquisition of NN IP by GSAM will be completed in the first quarter of 2022. The name of NN IP will then also disappear. GSAM will take over approximately 900 employees in addition to the assets under management. It is not known at this time exactly what the suspension of NN IP in GSAM’s organisation will be.