Advanced Credit Solutions is a tiny finance firm based in Luxembourg that was founded by a Belgian and works with insurers. Despite its outwardly bland appearance, the business it does is anything but.
The little-known outfit is the brains behind Fox Hedge, a roughly $5 billion fund created for Apollo Global Management Inc., according to people with knowledge of the situation. It’s a highly complicated investment vehicle that pushes the boundaries of just how creative the titans of private capital can be when putting regulated insurance capital to work.
In recent years Apollo and other peers with private equity roots have been buying up swaths of the life assurance and annuity industry, getting their hands on a mountain of savings. But there’s a snag. Using this cash for riskier, more lucrative bets on private credit and similar assets often inflicts hefty capital charges on insurers. And safer harbors like Treasuries and mortgage bonds don’t usually offer the returns that fund managers want to entice clients.
As private markets boom, insurers are desperate not to miss out.
That’s where Fox Hedge steps in. Working with ACS, Apollo bundled up a smorgasbord of assets plucked from its own funds, including safer assets and racier stuff like real-estate debt, into a Bermuda-based vehicle. They then sold bonds against it with investment-grade ratings and unusually long lifespans.
The plan was to give an insurer private credit-style returns while only having to set aside a fraction of the regulatory capital needed if directly investing in such assets, multiple people with knowledge say. The 40-year final maturity was built to match the needs of an insurance company with long-term liabilities.
Apollo didn’t need to go far to find its main buyer. Most of the debt was snapped up by its own insurer, Athene — about 86% of it as of December, Moody’s estimates.