Why have 14 blue chip hedge fund managers acquired or started reinsurers?

Hedge Funds
by trusted insight posted 10years ago 11901 views
From OpalesqueTV Warren Buffett ran a hedge fund for 12 years before quitting fund management and turning to banking, insurance, and reinsurance in 1969 as a better way to generate returns. Taking their cue from Buffett, Moore, Maverick, Greenlight, Cerberus, Citadel, HBK, D.E. Shaw, Apollo, AQR, Third Point, SAC, Paulson, and Soros have all acquired or started reinsurance companies (Soros has formed at least four). The primary reason is that the reinsurers are virtually certain to outperform the managers' funds. Secondarily, the managers obtain assets from sources otherwise unavailable to them and all of these assets are permanent capital. Tertiary benefits include gentler tax treatment for reinsurers compared to funds in the UK, Canada, Australia, and the U.S., daily liquidity if the reinsurers become publicly traded, and a better way to monetize the fund manager than selling some or all to a financial institution or doing an IPO. Historically, those hedge fund managers who sponsored startups had to hire marquee reinsurance teams (and offer them large compensation guarantees), personally invest more than $50 million, raise at least $200 million of capital, underwrite large busted deal, startup and fixed costs, and redirect resources for 18 months to 2 years to get going. Multi-Strat Re is a turn-key platform that allows eligible hedge fund managers to start their own reinsurer in far less time and impact on internal resources, with far less capital, deal risk, and set up and fixed costs and enjoy the same benefits that the aforementioned 14 managers have enjoyed: Outperforming his or her flagship fund by 5-6% p.a; Getting significant new assets from new sources (PE, mutual funds, retail, ERISA) while overcoming the "99 investor" restriction; Generating permanent capital -- the basis for a sustainable business; Offering investors better liquidity if publicly traded (see GLRE); Providing tax efficiency - no taxes on annual earnings at either the corporate or shareholder levels, capital gains treatment in Australia, Canada, UK, and the U.S; Compliance with SEC and AIFMD made easy: As investors buy a stock (in a reinsurance company whose funds are managed by a hedge fund manager), setting up a reinsurer is a simple, painless and proven vehicle for non-US managers to get US assets (via Reg D) and for US managers to get EU assets (complying with AIFMD). Hear about Multi-Strat Re from Joe Taussig in this Opalesque.TV BACKSTAGE video: Why reinsurance companies run by hedge fund managers are virtually certain to outperform the manager's own flagship fund. Are these real insurers? What does their operational business look like? Why have so few hedge funds set up reinsurers? How does Taussig's "Multi-Strat Re" platform work, and how is it received? What is required from a fund manager to set up his reinsurer? Joe Taussig is the CEO of Multi-Strat Holdings Ltd., which owns Multi-Strat Re and partners with asset managers to seed new reinsurers in 90 to 120 days for $100,000 in startup costs. By 2014-2015 Taussig expects to add 2-4 managers per month to the Multi-Strat reinsurance platform. Prior to forming Multi-Strat Holdings, Mr. Taussig has acted as a merchant banker for numerous financial services startups, divestitures, and acquisitions since 1990. He was involved with the formation of four of the aforementioned 14 reinsurers. The best known is Greenlight Capital Re, which has more than $2 billion of assets, which are managed by David Einhorn and is publicly traded on NASDAQ (GLRE). Prior to 1990, Mr. Taussig took significant stock, option, and warrant positions in troubled companies and served as their CEO or COO in an effort to turn them around. Better-known companies included United Press International, Data Broadcasting (now known as Interactive Data and recently sold for more than $3 billion), Cabletek (acquired by First Data Resources, then a subsidiary of American Express), and Instinet, which was bought by Reuters in 1987. He earned an MBA from Harvard University in 1972.