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
TheStreet Open House

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) 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

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,987.51 -61.49 -0.36%
S&P 500 1,985.54 -11.91 -0.60%
NASDAQ 4,567.5980 -24.2080 -0.53%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs