AIG (NYSE:AIG) had been fielding inquiries from potential investors about taking a 19.9% stake in the life and retirement unit, which sells insurance and annuities, but Chief Executive Officer Peter Zaffino in May said the company would use an IPO to sell the stake instead, dashing the hopes of bidders.
The move was part of AIG’s plan to split its general insurance and retirement businesses that was announced in 2020, years after activist investors targeted the company with a break-up plan.
“(The deal) provides AIG with flexibility as we continue to work to separate Life & Retirement from AIG, and results in significant new capital for AIG to deploy to support our capital management priorities,” Zaffino said in a statement on Wednesday.
Blackstone will also enter a long-term asset management relationship with AIG to manage $50 billion of life and retirement’s investment portfolio, with that amount increasing to $92.5 billion over the next six years.
Shares of Blackstone were up 3.6% at $102.25.
Private equity firms, including Blackstone, have sought out such arrangements, arguing they can use their investing prowess to provide better returns, an important consideration in the current low interest rate environment. The buyout firms, in return, earn fees for such services.
Blackstone Real Estate Income Trust will also acquire some of AIG’s affordable housing assets for $5.1 billion, the companies said.
AIG, which has managed the affordable housing portfolio for more than 30 years, said the assets “are no longer core to AIG’s long-term investment strategy.”