This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Here's Why Warren Buffett Is Steering Clear of Regulators

NEW YORK ( TheStreet) --New York State is taking a hard look at the acquisition of annuities portfolios by private equity firms and strategics to make sure the securities aren't used to disguise risk in the same way financial institutions spread risk across asset-backed securities leading up to the financial crisis.

There is one investor who has been careful to steer clear of the state regulator by the way he has gone about picking these portfolios: Warren Buffett.

Private equity as well as strategic players making deals to acquire annuities portfolios are getting inquiries from the New York State Department of Financial Services (DFS). Headed by Superintendent Benjamin Lawsky, the regulatory agency is looking into how portfolio managers take on more risk with the new pools of capital they control. The agency has a reputation among lawyers and dealmakers for being the most aggressive state investigatory agency for insurance M&A in the United States.

A handful of private equity transactions to buy annuities companies, as well as a few strategic deals, have to undergo a review process by the DFS. However, through careful sourcing of recent deals, Buffett's Berkshire Hathaway (BRK.B - Get Report) legally skirted the state's regulatory agency that oversees and approves insurance M&A, sources say.

Assets in the variable annuity death benefit business include commercial mortgages, public and private bonds, and back up death benefit policies and guaranteed minimum income annuities.

Regulators are inquiring into how portfolio managers approach risk when it comes to annuities' investable assets, a source said. New owners of annuities portfolios may elect to use these assets to back riskier investments like mortgage-backed securities.

"They have injected some more risk into the system," said one banking source, of investors now making annuities deals to use investable assets in riskier bets, adding, "They've taken advantage of this regulatory arbitrage."

To be sure, the activity is legal--it simply adds more risk to a portfolio.

A company can only make a certain amount of investments in riskier assets like mortgage-backed securities (which, in turn, provide an opportunity for bigger returns) in greater amounts if the assets are re-insured elsewhere.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ALL $65.05 0.00%
CI $138.54 0.00%
BRK.B $145.48 0.00%
HIG $44.38 0.00%
AAPL $93.74 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs