Why the Mark Walter news matters
Add Axios as your preferred source to
see more of our stories on Google.
Mark Walter. Photo: Keith Birmingham/MediaNews Group/Pasadena Star-News via Getty Images
Billionaire Mark Walter's surprise sale of the Los Angeles Lakers is drawing attention to, of all things, a once-staid corner of finance: life insurance.
Why it matters: Over the past decade or so, big Wall Street firms like Apollo Global Management and KKR have jumped into the business, buying life insurance companies that have been putting money into opaque private-credit investments that are harder for regulators to track.
The intrigue: Sometimes the same parent firm sits on both sides of the investment. One of its affiliates originates loans or packages them into securities, and an insurer it owns then buys them.
- These "affiliated" investments have drawn more attention from regulators in recent years.
Zoom in: Critics inside academia and some investors say they are a potential conflict of interest that puts regular folks' life insurance money at risk.
- One paper this year, from finance and accounting professors at Wharton, calls the life insurance money a "captive source of capital," and finds that PE-owned insurers "pay systematically higher prices when buying from affiliated issuers."
The other side: Private equity firms say that the insurers are investing in typically high-quality assets and that they're tightly regulated.
- State regulators require firms to disclose affiliated investments — and larger investments might require more notice.
State of play: Walter, in brief, is being scrutinized by federal investigators who are reportedly looking at the ties between loans made by Walter-controlled insurance companies to Walter-controlled businesses.
- Per the Wall Street Journal: "Authorities have focused on several entities that served as intermediaries between the Walter-controlled insurance companies that made the loans and the Walter-controlled businesses that received them."
- Walter's holding company has said it "is aware of and cooperating with the investigation."
- Insurance companies he controlled reportedly helped finance his 2012 purchase of the Dodgers and later funded other Walter-linked businesses.
- Walter-controlled insurers are now unwinding loans made to affiliated businesses and seeking to raise cash, Bloomberg reported Tuesday.
Between the lines: The attention Walter is drawing to the industry could bring more scrutiny to it.
- Another major insurance deal is facing a closely watched review in Delaware.
- As Semafor's Liz Hoffman put it: "Finance's hottest party may have found its pooper."
