Pretium Raising $2.25 Billion From AEL for Residential Credit

Money manager Pretium struck an agreement with American Equity Investment Life Insurance Co. that will expand the insurer’s assets with the firm to $2.25 billion, mainly for residential credit.

AEL will initially increase its commitment to $1 billion, according to a Pretium statement. It also bought a $100 million stake in the investment firm founded by former Goldman Sachs Group Inc. partner Don Mullen.

Insurance companies and pension funds with long-term obligations are shifting allocations to alternative asset managers as they seek to boost returns that have been depressed by rock-bottom yields. AEL’s investment with Pretium, which oversees about $16 billion, will focus on U.S. mortgage assets, including non-qualified loans that can’t be sold to Fannie Mae or Freddie Mac.

“We believe the U.S. residential housing market represents an attractive, immediate investment opportunity,” Mullen said in the statement. “There is a compelling combination of strong housing fundamentals amidst broader economic uncertainty.”

For most of the year, Americans have been snapping up larger, suburban houses that double as their remote workplaces, sending home prices soaring across the country. While borrowing costs are ultra-low, higher asking prices are often leading to larger loans.

Pretium has been expanding its residential business, most recently leading a $2.4 billion acquisition of Front Yard Residential Corp, which provides affordable rental homes.

It also bought Deephaven Mortgage, a non-qualified mortgage originator, and Selene Finance, a mortgage servicer of performing and non-performing loans, last year to bolster its ability to source assets and improve performance.

AEL parent American Equity Investment Life Holding Co. earlier this month agreed to a tie-up with Brookfield Asset Management Inc.

That accord expands a strategy by the insurer in which it’s aiming to increase yield on new investments from about 3.5% to above 4% to ensure profitability while interest rates are low. Residential credit assets can generate yields of roughly 2.75% to 6% depending on their credit grade, according to market participants.

©2020 Bloomberg L.P.

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