What a Reinsurance Company Looks for in Fund Managers
Re-Insurance Company Institutional Investor Mandate Interview
Fund managers and sponsors deciding whether an insurance or reinsurance investor fits their strategy, and investors who want a reminder to ask hard diligence questions.
In their words
"It depends on how it's structured. The underlying opportunity and collateral are most important."
"I think if you're not asking the question, there's a reason why, and you might want to avoid that opportunity if for whatever reason you're afraid or uncomfortable asking the hard questions."
"I think some investors are timid. You know, they're embarrassed to ask for a background check."
The short version
Audi oversees alternatives at a $6 billion reinsurance company and also manages investments for their family. They explain that reinsurers take on part of the risk that primary insurers write, which lets those insurers write more. For fund managers, the practical question is fit. Audi says funds under $500 million are generally not reviewed, and they prefer fund three or higher, though exceptions exist.
The family side works differently. It co-invests when the insurer has an overage opportunity, and it also backs early stage or niche late stage deals outside the insurer's mandate. Audi is interested in vertical SaaS roll-ups that buy cash flow positive companies. Their closing advice is to ask every hard question in diligence. Richard C. Wilson adds that background checks, reference calls and third party diligence are reasonable steps.
On the record
- Audi oversees alternatives at a $6 billion reinsurance company and also oversees their family's investments.
- The reinsurer generally does not look at funds under $500 million and prefers fund three or higher.
- Richard C. Wilson mentioned a SaaS company valued at 16 times revenue that could buy a competitor valued at five times revenue.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Re-Insurance Company Institutional Investor Mandate Interview. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around rated fund structures, insurer investment constraints and fund offering documents. Do not use AI to write your own legal agreements.
What to take from this talk
- Check fund size before approaching. Audi says their reinsurance company generally does not look at funds under $500 million. They prefer fund three or higher. They have made exceptions, including fund ones, on an opportunistic basis.
- Current income is a focus. Audi describes high single digit current income and low to mid double digit total return as an optimal profile. They link this to the period after COVID.
- Structure matters to insurance investors. Audi says rated structures can be of interest, but insurance investors often approach them with caution, and many sponsors talk to a securities attorney about how a given structure may be viewed. The underlying opportunity and collateral matter most. Audi sees a strong rating as an added benefit.
- Family capital has two buckets. The family co-invests alongside the insurer when there is an overage opportunity, because the insurer fills its maximum allocation first. The second bucket is early stage or niche late stage deals outside the mandate.
- Ask the hard questions. Audi says no diligence question is off limits, and reluctance to ask can be a reason to avoid a deal. Richard C. Wilson adds that background checks, reference calls and third party diligence are normal.
Related questions
- What is the difference between institutional and retail capital?Institutional capital comes from organizations that invest on behalf of others, such as pensions, endowments and large managers.
- What is an operational due diligence questionnaire for fund managers?It is the written list of questions an institutional investor sends a fund manager before allocating capital.
- How do pension funds choose which managers to invest with?Pension funds usually pick managers through a group process.
Questions about this video
What fund size does this reinsurance investor look at?
Audi says funds under $500 million are generally not reviewed. They prefer fund three or higher, but they have looked at fund ones and smaller opportunities on an opportunistic basis.
What return profile is the reinsurer looking for?
Audi names high single digit current income and low to mid double digit total return as an optimal profile. Current income is a definite focus.
What sector does Audi like on the family side?
Audi is interested in vertical SaaS, meaning mission critical software for niche industries. They like roll-ups that buy cash flow positive or EBIT positive companies and plan to raise only one external round.
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