The real question is what the risk-based capital charges should be on private debts. Whatever the regulators are doing right now, the charge is probably too low. Asset classes that have not gone through a failure cycle are typically misrated by the regulators. In the old days, they would not allow new asset classes to be invested against liabilities, but only surplus. Until you have an idea on default losses and their variability, you don't have any good means to figure out what the right risk-based capital charges should be.
Thanks for the additional context David. I feel like this topic could be it's own piece. There's so much depth to the insurer/alt manager crossovers we've been seeing. The liabilities of an insurer being the annuities is certainly an important thing that I should've perhaps highlighted more. Happy to chat more on this!
Indeed, a structurally very important discussion..
Could you please share the checklist with me?
Yes will do!
Interesting on proposed tax changes on carry
https://taxthoughts.substack.com/p/tipping-private-equity?r=573pt8
Thanks - will have a look!
The real question is what the risk-based capital charges should be on private debts. Whatever the regulators are doing right now, the charge is probably too low. Asset classes that have not gone through a failure cycle are typically misrated by the regulators. In the old days, they would not allow new asset classes to be invested against liabilities, but only surplus. Until you have an idea on default losses and their variability, you don't have any good means to figure out what the right risk-based capital charges should be.
Thanks for the additional context David. I feel like this topic could be it's own piece. There's so much depth to the insurer/alt manager crossovers we've been seeing. The liabilities of an insurer being the annuities is certainly an important thing that I should've perhaps highlighted more. Happy to chat more on this!
Excellent coverage as always. Could you please share the checklist with me?
Thanks Adil - will do!