A Q&A with Athene CEO Jim Belardi
July 18, 2013 by Victor Epstein
Jim Belardi is in a difficult position, but one that’s the envy of many of his peers.
The insurance industry veteran is head of a fast-growing company named Athene Holding Ltd. that’s backed by Apollo Global Management, a Wall Street investment firm with deep pockets. Athene won the bidding war for Aviva USA, a West Des Moines-based insurer with 1,400 local employees, and has made three other acquisitions since its birth in 2006.
However, its ties to Apollo, a company with significant private equity funding operations, are cause for concern for insurance purists. They worry that the risky investment practices of private equity funds, which have been snapping up troubled insurance operations recently, will put policy-holders and traditional insurers in jeopardy.
Belardi, 56, sat down with The Des Moines Register for an exclusive interview on July 11 in which he talked about his expectations for the joint future of Aviva USA and Athene, which will be known as Athene USA after the deal is completed. He downplayed any connection between Athene and Apollo’s private equity operations, which accounted for 86 percent of its economic net income in the first quarter, while making it clear he enjoys the firm’s full support. An Apollo-sponsored investment vehicle based near Britain in the Channel Islands tax haven is Athene’s majority shareholder.
However, Belardi was straightforward about his expectations for Athene’s future, which include the hunt for additional acquisitions, a commitment to being a good corporate citizen in the greater Des Moines area, and an initial public offering by Nov. 30, 2015, according to documents from Apollo Alternative Assets. He’s moving the operational headquarters for the future Athene USA into the current Aviva USA headquarters in West Des Moines, which is home to one of the largest insurance annuity operations in the U.S. Athene is legally headquartered in Bermuda, another tax haven.
Belardi’s comments were edited for length to condense the one-hour interview. All comments within quotation marks are verbatim.
Q: On the future of Athene in the Des Moines area:
A : “We’re excited about the Aviva acquisition. It’s a transformative event for Athene. It’s a game-changer for us. We’re delighted that our U.S. headquarters for operations is going to be in Des Moines, and we expect to be the best fixed annuity company, and our acquisition of Aviva will set us on a track for that,” Belardi said. “We’ll have over $60 billion of assets on our balance sheet, $4 billion to $5 billion of equity, and we’re excited about that. Infrastructure that we haven’t had before. We think Des Moines has an incredible employee base to draw talent from for our company.”
Q: On the likelihood of an initial public offering for Athene by 2015:
A : “The reason Athene at some point will be a public company is we want access to additional capital, over and above the capital that our existing institutional shareholders have contributed, as well as additional capital that those same shareholders will contribute in the future,” he said.
“We expect an Apollo entity … to have a long-term relationship with Athene — pre- and post-public offering,” he said. “It’s a strategic investment. They’re our long-term partners.”
Q: On concerns by insurance regulators and traditional insurers about the entry of hedge funds and private equity funds into their industry:
A : “We agree those are legitimate concerns — it just doesn’t apply to us,” he said. “We are an insurance company and that’s my personal history and will continue to be.”
“Athene has no relationship to the private equity piece of Apollo’s business,” he said. “Apollo’s private equity business has not made any investment in Athene (and) we don’t own any part of Apollo’s private equity business.
“The majority economic owner of Athene is an Apollo vehicle named Apollo Alternative Asset. The vast majority of the shareholders of AAA are not Apollo, they’re independent of Apollo shareholders.”
Q: On whether the co-founders of Apollo have the clout to replace him.
A: “Everybody has a boss.”
Q: On Athene’s future acquisition plans:
A: “Growth for growth’s sake is not interesting to us. We have no interest in that. Profitable growth, protecting the policyholder, that’s what interests us. So if there’s opportunities out there that can allow us to do that and meet all our risk metrics, we’ll get bigger. If there isn’t, we’ll stand by the wayside until there are opportunities.
“We look at everything, that’s what we’re paid to do. But I can tell you that the number of things that we pursue compared to the number of things that we look at are two very different numbers.
“What motivates us to make acquisitions is that it’s one of our funding sources for our company,” Belardi said, noting that Athene is a net investment spread generation business. “We opportunistically, when the price makes sense, buy companies. And the proceeds from those funding sources are all managed and invested in our asset management office in Los Angeles.
“Aviva, when we close that, will be our fourth acquisition,” he said. “The most important thing in making an acquisition work is paying the right price. You can be the greatest executioner of a strategy in the world, but if you pay the wrong prices (it’s) hard to ever recover. … It’s an albatross that remains around your neck.”
Q: On whether there’s anything too big for Athene, given its partner’s deep pockets:
A : “Post-Aviva, we’ll have about $60 billion of assets on our balance sheet. It’s not final yet, but the equity number is somewhere between $4 billion and $5 billion. So, much bigger than we’ve been in the past. Look, we analyze everything on a case-by-case basis. We have to make sure we have adequate capital. Our goal is to increase our ratings, so if we were to bite off more than we can chew, that would be a bad thing for our goals. So we don’t plan to do that.”
Q: On whether it concerns him that Apollo’s founders are former employees of the Drexel Burnham Lambert investment bank, which played a key role in the 1991 failure of First Executive Corp. — one of the largest insurance failures in U.S. history:
A : “Absolutely not — I’m delighted to be working with every single person I’ve met at Apollo,” he said. “These are high-character, highly pedigreed performers and our association with Apollo is a huge competitive edge for us. They have deep pockets to support our business, and they’re willing to do that, to put their money where their mouth is.
“We wouldn’t be where we are today without our association with Apollo. It’s been a great relationship. We’re true partners.”
Q: On whether Des Moines is going to be better off for this deal:
A: “We believe strongly that Aviva will be a stronger company because of Athene and Apollo’s ownership. Absolutely. That’s been the case in every acquisition we’ve made. We don’t expect it to be any different for this acquisition.”
Q: On the use of a less demanding actuarial standard at Aviva USA, called Actuarial Standard 43, instead of the industry norm, which is called Actuarial Standard 33.
A : “The change from 33 to 43, I’m told, was completed two years ago. And so it was Aviva and their decision to do so. It was blessed by the Department of Insurance. And so that was part of the company that we’re buying. It had nothing to with how we have or will invest money. Zero.”
http://www.desmoinesregister.com/videonetwork/2549507950001/Athene-CEO-Jim-Belardi
