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CMA
July 13, 2018  

Blackstone Taps Deutsche Pro for New Gambit

Blackstone has hired veteran originator Kevin Pivnick as part of its plan to become a major investment manager for insurance companies.

Pivnick was named a managing director in the real estate debt strategies platform, which encompasses Blackstone’s mortgage REIT and debt funds. He’ll start in September, reporting to senior managing director and global originations chief Tim Johnson.

Pivnick spent the past 14 years at Deutsche Bank, most recently as head of conduit originations. At Blackstone, he will focus on originating fixed-rate mortgages for insurance-company clients.

Blackstone has mapped ambitious plans to advise insurers on a broad range of investments, including commercial real estate. Insurers need long-term, fixed-rate investments to match the maturities of their liabilities — insurance-policy and annuity payouts they will be required to make years down the road. Given the current low-yield environment, insurers are having a hard time getting adequate returns on investments within their risk parameters.

Blackstone, which has giant real estate, private equity, credit and hedge fund businesses, believes it is well-positioned to line up suitable investments at attractive yields. To address that market, earlier this year it launched a unit called Blackstone Insurance Solutions. Blackstone chief executive Stephen Schwarzman told stock analysts on Feb. 1 that he expects the unit to have $100 billion of assets under management “over time.”

That would represent a major new business line for the fund giant. It currently has $449.6 billion of assets under management, divided into four segments: credit ($140 billion), real estate ($119.6 billion), private equity ($111.4 billion) and hedge fund ($78.7 billion).

Johnson said the push will enable Blackstone to take advantage of its existing infrastructure. “It’s a natural fit for us — finding large loans for insurers that may or may not otherwise have the ability to source those loans on their own,” he said. “We have the relationships, the infrastructure, the origination machine. We can target the kinds of assets that insurers like.”

And while insurers have traditionally focused on low-risk, fixed-rate commercial mortgages, other investments will also be considered. “Insurance companies are pretty dynamic in terms of the kinds of investments that will fit into their portfolios,” Johnson said. “It’s not as simple as having a chunk of ‘set it and forget it’ type of long-term, fixed-rate loans. They can have portfolios that include some floating-rate transitional loans, some fund investments that work to raise their yield, some mezz — a lot of different things.”

Tony James, Blackstone’s executive vice chairman, told the stock analysts that the company has developed proprietary investment structures that give insurers more-favorable treatment under capital-adequacy requirements. “Frankly, no one else has the mix and the breadth of products to do it,” he said.

The program’s focus on fixed-rate loans is unusual for Blackstone. As both a borrower and a lender, the company has primarily emphasized floating-rate debt. But insurers rely heavily on fixed-rate investments.

In 2004, Pivnick joined Deutsche’s London office, where he launched the European conduit program and managed it until the downturn. In 2008, he transferred to New York. Two years later, he helped to restart the U.S. conduit program as the CMBS market revived after the market crash.