UPDATE 3-BlackRock to buy Swiss Re private equity business

Tue Jul 3, 2012 12:40pm EDT

* BlackRock to acquire $7.5 bln asset business

* Deal follows HarbourVest acquisition of Conversus assets

* Financial institutions divest private equity assets

* AXA PE to buy $850 mln in private equity assets from OMERS

By Simon Meads and Emma Thomasson

LONDON/ZURICH, July 3 (Reuters) - U.S. investment manager BlackRock is buying Swiss Re's European private equity arm, marking the second deal for a private equity fund manager in as many days as sellers contend with a new regulatory landscape and tough trading.

Swiss Re's deal to sell its $7.5 billion private equity and infrastructure fund of funds business follows hot on the heels of HarbourVest Partners' agreement to buy Amsterdam-listed private equity fund of funds business Conversus Capital .

And a further deal on Tuesday, by AXA Private Equity for an $850 million portfolio of assets from Canadian pension fund OMERS, points to an industry in flux, with some private equity investors cutting back and others consolidating their positions.

Both Swiss Re's private equity business and Conversus invest in private equity funds from firms such as Blackstone, CVC and KKR, which in turn plough that capital into companies via leveraged buyouts and minority investments.

Insurers and other financial institutions are streamlining their businesses and reducing exposure to private equity in the face of new regulations that will make risky assets more expensive and so less profitable to hold.

Meanwhile, specialist fund managers are taking advantage of tough trading conditions and the discounts at which assets trade to pick off weaker rivals and build up their fund of funds businesses.

BlackRock said the terms of the all-cash deal were not being disclosed. It expects the deal to be completed by the end of the third quarter and be at best modestly accretive to its 2012 earnings.

The deal sees Swiss Re Private Equity Partners (SRPEP) AG outsource the management of its investments to BlackRock Private Equity Partners (BRPEP), an arm of its Alternative Investors division, which had $110.4 billion in assets at end-March.

Other asset managers have sought to benefit from the industry shake-up and the booming market for trading of private equity assets.

AXA Private Equity, the private equity arm of AXA insurance group, this month raised a $7.1 billion fund to buy private equity investment portfolios from banks and other institutions.

TRANSFER

Swiss Re said in a separate statement it would continue to hold the underlying investments in SRPEP and plans further private equity investments, mainly through this platform.

A spokesman said 50 staff based in Zurich, New York and Bratislava would be transferred to BlackRock under the deal.

Swiss Re launched its private equity business in 1995 and opened it to co-investors in 2002. It sold the platform to Swiss private investment office Horizon21 in 2006, only to bring it back again to Swiss Re in 2010.

The transaction will have no material impact on the earnings estimates for Swiss Re, said Sarasin analyst Martin Schwab.

"Nevertheless, we regard the outsourcing as expedient as it allows Swiss Re to further focus on its core business," Schwab said.

Swiss Re shares closed up 1.66 percent, compared with a 1 percent firmer European insurance sector.

BRPEP head Russell Steenberg will lead the combined unit, while SRPEP chief executive Christian Hinze will join BlackRock as deputy head of the combined business.

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