All right, good morning. Welcome, everyone. This is a meeting I personally have been looking forward to for quite a while. Appreciate the turnout here and for everybody who's tuned in to the webinar. I think it was my second week on the job, I had an opportunity to get in front of a number of you. One of the things that you asked was, we would love to just go deeper on the investment portfolio. As everyone knows, it's a big part of the F&G story. Could we go deeper and hear directly from Blackstone on the portfolio? That's exactly what we're going to share with you today.
We've lined up a number of speakers, but in addition to comments from Raj Krishnan, who is our Chief Investment Officer, you're also going to hear some insights from Bennett Goodman, a Senior Managing Director and Chairman of Blackstone Insurance Solutions. We'll be joined by portfolio managers from Blackstone who are going to share their insights into the portfolio. The program is going to probably run an hour and a half. We're going to leave time for your questions. I thought I'd start by introducing the folks on the panel here. I'm Chris Blunt, President and CEO of F&G. With us as well is Raj Krishnan, our CIO, Bennett Goodman, Senior Managing Director from Blackstone, and one of the co-founders of GSO. Eric Schramm, who is a Senior Managing Director in the Blackstone Insurance Solutions business. Dan Smith from GSO.
We also have Rob Camacho from Blackstone Insurance Solutions. Last but certainly not least, Jonathan Pollack, who runs our real estate debt business. You're going to get a chance to hear directly from all the key decision-makers today. First up, Raj will talk about the investment thesis and why the portfolio is constructed the way it is, and in particular, why it's a good fit for our liabilities. Raj is going to be followed by Bennett and the Blackstone team. A couple other folks that are here today that I want to acknowledge. In the back, Chinh Chu , the co-chairman of the board of FGL Holdings is here, and in the front row, F&G's CFO, Dennis Vigneau. As I said, we're going to go through the presentation.
We're going to have a little Q&A after that. Follow for lunch for those of you that don't have to run out. To begin, I just want to make a few high-level comments regarding F&G. As you know, we had a fantastic year in 2008. ROE was up 460 basis points over the prior year. We continue to make progress on a number of our key strategic initiatives. As you know, we're a leading provider of retirement and protection products to the middle market, which remains an attractive growth market. We believe we have a compelling model. Stable, well-priced insurance liabilities which allow us to earn attractive spreads. Going forward, you know our strategy. We've been growing well in terms of organic growth. That is something that we anticipate will continue. We're exploring alternate distribution channel opportunities, particularly now with our upgrade to A-.
Obviously, M&A remains an integral part of our strategy. Most importantly, which we'll go into in detail here is the investment portfolio repositioning, which is largely complete now on the fixed income side. When it comes to what do we think are sustainable competitive advantages at F&G, it's a few things. We've got an experienced leadership team that knows this space well. We've proven disciplined expense management. There's a performance culture, which I think you've seen bear out in the results. Then I would argue, perhaps most importantly is our partnership with Blackstone. Obviously, this is a tremendous opportunity for us as we go to market. Before I hand it over to Raj to talk about the investment portfolio, I think it's incredibly important to frame it in the context of our liabilities.
As you all know, one thing that's unique about insurance investing is it's a liability-driven strategy. There, when you look at our liabilities, a number of things should jump off the page. You see the profile of our liabilities. We're largely a fixed indexed annuity provider and a fixed rate annuity provider. This is a young book. You see the six-year weighted average life within the portfolio. 85% of our book have surrender charge protection, and the distance between minimums and what is being credited is 90 basis points. Also, keep in mind, unlike variable annuity and other products, these are products that are repriced on a monthly basis. We have, importantly, a young book with significant protections which lends well to a business that is effectively in the net spread business.
With that, I'm going to now turn it over to Raj who's going to start the program and take you through the investment portfolio.
Thank you very much, Chris. As Chris mentioned, we invest in a manner that reflects the DNA of our balance sheet. Our asset allocation decision is informed by a deep understanding of the liability profile that Chris referenced earlier. It's the same philosophy that has governed our investment process in the last ten years since I took over management of this portfolio. I would say, though, it's greatly enhanced with the Blackstone partnership, and I'll go into a bit more detail on that in a moment. What we determined about a year ago as we looked at the portfolio and looked at the investment landscape, a couple of things jumped out at us. First, we were struck by the fact that underwriting standards that we were seeing in the broadly syndicated, typically public investment grade market were weakening. Covenant protection, which was light to begin with, was virtually nonexistent.
Evaluations, as we began 2018, were looking increasingly stretched. Second, the rise of yields on the short end and the stubborn resilience of yields on the longer end made for an unusually flat yield curve environment despite what we thought were generally positive economic conditions. While we typically shy away from making explicit rate bets, we did not think that the flatness of the curve provided enough compensation for an aggressive duration posture. As a result, we made the decision to reduce NAIC-1 and NAIC-2 rated securities and rotate this exposure into structured securities. This decision, as Chris mentioned earlier, was really informed by our deep understanding of the liability profile and my specific experience with this liability profile over the past decade.
It is a relatively young block with high surrender charges. As a result, we are able to rely less on credit risk to support these liabilities, and instead have broadened our sources of net investment income to incorporate illiquidity risk, which the team will go into in a moment. As I mentioned, this capability has been greatly enhanced by Blackstone and their ability to source and underwrite these assets. As we look at the results, we are quite encouraged. When we began our rotation out of corporates into structured assets, we believed this was the correct thing to do given where we are in the credit cycle. To validate our assumptions, we asked BlackRock to provide an independent validation and assessment of our portfolio over the prior year.
The result is that the decision to allocate away from public corporates into structured assets has improved the risk profile of the portfolio in terms of lower credit VaR or value at risk. In addition, we've reduced the portfolio's dependence on corporate bonds to support net investment income. Candidly, we've diversified our sources of net investment income. Last, we have reduced outright asset duration over the prior year by selling predominantly fixed-rate assets and allocating it to structured assets that are largely floating rate in nature. The resulting portfolio yield and risk metrics tell the story. The net book yield increased by 43 basis points on a year-over-year basis, and the credit profile as measured by NAIC ratings has remained stable at NAIC 1.5.
The higher spread we have been able to capture through our partnership with Blackstone has allowed us to pick up yield while maintaining the same average credit profile and actually shortening asset duration while reducing the dependency on the portfolio on public corporates. We didn't stop there, though. As we mentioned during our last earnings call, we have identified further opportunities to de-risk our BBB-minus portfolio and have done so, selling approximately half a billion dollars of BBB-minus securities since the beginning of the year. This repositioning reflects our ability to let our understanding of our liability profile to consider the use of less liquid securities in the overall asset allocation mix. Independent validation from BlackRock indicates that these asset allocation shifts have been the right decisions to make.
From my seat and from your seat, you really shouldn't be content to give us credit for making those asset allocation calls alone. Which is why we're here with Blackstone to shed more detail on how they're executing our strategy on a security-by-security basis. I'm going to turn this over to Bennett Goodman, the co-founder of GSO Capital and the chairman of Blackstone Insurance Solutions, to share some more detail on how they're providing what we believe is a durable investment edge for F&G.
Great. Thank you very much, Raj. I'm going to talk a little bit about the partnership that we've created with F&G, and I'm going to focus really on three topics. Give you a little background on Blackstone, who we are, and this Blackstone Insurance Solutions group that we created a little bit more than a year ago to house all the activities of the firm that are important to our insurance company clients. I'm going to turn it over to my colleagues to go on a more granular basis of precisely what we did and how we did it. I also want to give everyone a better sense of the two main platforms within Blackstone that drive a lot of this activity, our credit group, which goes by the name GSO, as well as our real estate debt strategies group.
You'll get a much better sense of the capability, the resources, and the effort that we put in at Blackstone to help F&G accomplish all that it's done historically, but more importantly, what we plan on trying to accomplish going forward. With that, let me tell you a little bit more about Blackstone. We are a large, if not the largest, alternative investment manager. What do we mean by that? We focus on four or five different investment strategies. I think the firm is pretty well known for its private equity activities, its real estate investment group, as well as credit. We go by GSO. I'm the G. I'm shocked they still keep this name. We should just be Blackstone Credit, but I think they pay way too much deference to me, and it doesn't really matter to me. Just think of it as credit.
When we say credit, non-investment grade credit. We don't really traffic much in investment-grade BBB or A or AAA investing activities other than through the issuance of those securities through some of our CLO activities, which we'll talk about later. We also have a big presence in the fund of funds group. We have another investment activity around the secondary purchases of other private equity funds. We also have a tactical opportunity strategy, kind of a special situations group embedded in our private equity cluster, that does a lot of things that are relevant to our insurance company clients, particularly F&G. As a firm, we have approximately a half a trillion dollars of AUM. That puts us in a pretty rarefied universe of companies that have the breadth and scale that we do. Pretty simple business model at Blackstone.
We try to pursue investment excellence in all that we do. If we're able to accomplish that, our LPs, our investment partners, our investors are happy. If they're happy, they reward us with more capital, and that virtual cycle just repeats itself. We try to keep it real simple, try to be really good investors, and have some happy clients, and then it kind of takes care of itself. We do have some competitive advantages that help us achieve that investment excellence. This slide summarizes the returns that we've been able to generate by investment group over a very long period of time, in some businesses, in fact of up to three decades. That's a long time. The things that make Blackstone unique, we have the size and scale across all these different investment activities to do deals that other people just can't do.
We're firm believers that scale helps in investing. If we're in a situation where we're one of two or three or four competitors, our odds of winning that deal go up exponentially relative to being in a situation where 100 people can do that deal. And we try to use that scale across all of our activities, to be able to provide solutions to folks who need capital. Two, we operate on a global basis. Our job is to find the best risk-adjusted returns anywhere in the world. We're not just a U.S.-centric firm. We have activities throughout Europe and Asia, and we're kind of indifferent as to where those best returns lie. But it's our job to go out and to find it. Thirdly, we have a culture that's really defined by collaboration. Tremendous informational synergies of housing all these different investment activities under one roof.
We have a fairly tight command and control apparatus, which ensures that each of these different groups are communicating and interacting with one another. As investors, what we want is more information to make good judgments. At Blackstone, when you sit within this global enterprise of investment activities spanning private equity, real estate, credit, we can develop a better macro view of what's going on. We're also at the forefront of new developments. If we can find a theme, and apply it across all of our portfolios, it gives us huge advantage. And the firm is really good at identifying themes.
Whether it was the recovery of the home building cycle back in 2011, whether it was Europe coming back from its economic issues in 2013, '14, whether it's being bullish or being negative in the energy patch, these are all investment judgments that we're able to develop at the top level of the firm. When we find something that we think is compelling, each and every investment group can express that perspective into their markets. I think that's a large part of what helps us drive these returns. Finally, in terms of competitive advantage, continuity is really important as investors. This is a firm that's been around for 30-something years. We didn't just add a new cluster to the investment platform. These are groups that have been around for a very long time, run by people who've been in those spots for a very long time.
Quite frankly, as an investment matter, we learn the most from mistakes. In a bull market, anybody can look like a genius. Having lived through cycles with the same team, you learn what you did wrong, then you adjust. We have the benefit in each of these businesses of leadership teams that have been in-house for a very long time, who all share a similar perspective of risk and reward, who all conduct themselves with the same kind of ethical standard across all of our businesses. We're able to capture either top We measure quartiles. I believe we're a top decile performer in each and every business that you see here on the slide. That is driven by the culture of the firm. I have this quote here from our Chairman and CEO, Stephen Schwarzman, about why we created this Blackstone Insurance Solutions group.
There's a blessing and a curse of getting Steve involved. The good news is he's focused. The bad news is he wants to know each and every day how we're doing and what we're doing and how we're doing it. Which holds us accountable, and we're okay with that. I will say Blackstone has a lot of different activities going on. Our core businesses are large, and we have plenty of other areas to continue to grow. There is no business at Blackstone besides this Blackstone Insurance Solutions that has the potential to really move the needle for the firm. That's really why Steve is quite focused on what we're doing.
It's also why Jon Gray, our President, Tony James, Vice Chairman, are intimately involved with the Blackstone Insurance Solutions group, our activities, and making sure that the firm allocates all the resources that we need to be effective and to do our job. Another key component of this partnership with F&G is the rather large investment that we have made through our funds into F&G. One of the things that we've learned at Blackstone through the years, you could pick the right investment, you really want to make sure you are aligned with all the constituents that can determine the outcome of that investment. It goes way beyond just the analysis, is this a good deal or a bad deal? We have $625 million of capital invested in F&G. $625. That's large. It's one of the largest investments that Blackstone's made across our funds.
We own 19% of the common stock. We are aligned in an incredibly strong way, I think that alignment just reinforces why we're able to get the kind of resources and cooperation across our platform at Blackstone to deliver into this BIS group, this Blackstone Insurance Solutions group, what I think are some real value-added capabilities. We created this business in early 2018. Today we have approximately 35 people. We have different capabilities, the group has particular insurance expertise, not only in portfolio construction and investment activities, but also from a regulatory perspective, from a risk management perspective. All are important in terms of crafting investments that make sense for F&G and for our other insurance company clients. There's lots of financing activity across the Blackstone investment businesses, we try to take that insurance expertise and marry it with the various products of the firm.
Historically, as was the case in GSO, if we had a securitization financing our portfolios, we'd hire an investment bank, we'd pay them a fee, they'd distribute those triple A, single A, triple B securities into the marketplace. We didn't really concern ourselves with who bought them. We realized through our Insurance Solutions group, those are very relevant flows for our insurance company clients, and it's a similar situation with our real estate group. We have tremendous investment flows that we can orient to our insurance company clients, and if we do a good job of that, we can really drive performance. What our goal is to assist F&G to develop a highly curated Blackstone portfolio of investments that provide a greater risk-adjusted return per unit of Regulatory Capital, and that's in large part the value added that we're trying to provide across our platform.
We also do those activities, I think, in a very streamlined, effective investment process. It's not just about picking investments. There's got to be a lot of coordination, not just with the internal Blackstone investment groups, but also with F&G. To make this process really work to its ultimate potential, we have to be locked arm in arm with F&G, and I would say that it requires an intensive level of interaction. We are incredibly proud of the partnership that we've been able to develop with Raj and his team. There is deep mutual respect across both groups. To say there are lots of daily conversations, I think would be modest. It's almost like one firm in many respects. We respect all the separations of duties and fiduciary responsibilities, of course.
Tremendous, I think, dialogue, lots and lots of interaction, and it's part of the successful formula that we've been able to develop with F&G. I think that culture of working together helps drive those results that Raj was referring to and what we were able to accomplish in 2018. I think going forward, there's a lot more that we can do to drive those results even higher. With that, I'm going to turn the presentation over to my colleague, Erich, and I think I got you to your first slide.
Perfect. Thank you, Bennett. I'm just going to start off. As you heard from the company, we achieved quite a bit of, I think, accomplishment in terms of rotating the balance sheet in 2018. I'm just going to review that a little bit and then tell you a little bit about how we did that, kind of why we did that. As you can see on the first slide here, I think an important component of this, which I think speaks to what Ben was talking about in terms of BIS' focus on not just being an asset manager, but really being an asset manager for insurance companies, is the fact that we were able to achieve this uplift in net book yield without sacrificing credit quality. You can see here the net book yield uplift was 43 basis points.
Importantly, on the right side of the page, you can see that we did that in the context of not changing the NAIC rating quality, unchanged year over year at 1.5. We think that's important at this point in the cycle to be a little bit more conservative. In fact, as you heard from Raj, most recently we've been continuing to de-risk the portfolio by selling down some of the triple B bonds that we're less comfortable with. The next page here. This is a little bit, how do we do this? How do we increase the book yield while taking on no incremental credit risk? I think an important feature of this is we started by focusing on the liability profile of the company. We were able to get very good insight into the liquidity that they needed.
I think that really gave us the confidence to move into some of these structured products that do have a little less liquidity, but where you're picking up incremental premium for a lack of liquidity, for some complexity, and I think importantly, for some scarcity in terms of just finding these types of opportunities. As you heard from Raj, the liability profile is very sticky and predictable, so that was kind of a key component here. In 2018, the market conditions were such that you could capture a significant spread premium over investment-grade corporate bonds, and specifically in the areas that are highlighted here in terms of CLOs, CMBS, and some ABS. We've got more detail on this later in the presentation, but I think it's, again, important to note here that Blackstone has deep underwriting expertise in these areas, particularly with GSO and BREDS.
That really allowed us to identify within structured products deals that had very good collateral and deals where we really felt there were very robust kind of structural protections. Finally, I would just point out here, which was touched on earlier, that again, all this was done in the context of F&G's ALM framework. When you look at asset and liability duration, that stayed very kind of tight inside of half a year. Kind of an important component of, again, how we were able to achieve this. The next page here. Here's the order of magnitude difference between spreads across various but equally rated securities. In this context, in this page, it's all triple B. On the left there, you can see the spread for investment-grade corporate bonds at triple B level, and then for CMBS and for CLOs.
Again, very obvious to see that in 2018, you were able to pick up quite a bit of spread by moving out of investment-grade corporate bonds and into CMBS and CLOs. This dynamic persisted through most of 2018, which was, again, an important way we were able to achieve the performance that we did. Again, I think it's worth noting here, though, that by moving from investment-grade corporates into CMBS and CLO, our view is you're not taking on incremental credit risk. What you're really doing is you're capturing spread premium, again, for a lack of liquidity, some structural complexity within this stuff, and an ability to kind of source and originate. Some sort of scarcity premium associated with these. I will say here, too, that these are averages, and it's very difficult to buy the average. Not all these deals are created equally.
I think at Blackstone, we've got the resources and the expertise to underwrite the underlying collateral. Then on top of that, F&G's got the appropriate liability structure to own some of these things that are less liquid. I think if you have those two components, you can take advantage of what the market gave you in 2018, where we really feel like you were able to earn kind of superior risk-adjusted returns if you could do those two things in the structured products areas. Slide 15 here. The left side of the slide really just sums up why we like these particular structured securities. Again, you could pick up incremental spread by capturing kind of liquidity premia and some complexity premia. Additionally, there's pretty significant structural protections in terms of credit enhancements, subordination. Those have actually improved quite a bit from the great financial crisis.
We obviously spent a lot of time on that. Again, I think it's important to note that all of that was done in the context of maintaining a conservative rating profile. I think this goes back a little bit to BIS really being an insurance asset manager. That the capital efficient nature of this stuff by keeping NAIC flat was obviously important for our clients. The right side of the page is a little bit about really, as it says there, Blackstone's edge. I think it's a key differentiator and really the reason that we felt comfortable with the portfolio rotation that we executed in 2018. Within these structured products areas, it's absolutely critical to have a strong view on all the underlying collateral. For CLOs, that means roughly 300 kind of leverage loan individual positions.
For CMBS, that's 75-100 of senior mortgage obligations. Having the capability to go in and have a view on every single piece of collateral, I think is really important here. It's not just underwriting the top 10 and then hoping that the pool performs towards some sort of historical kind of loss curve. At Blackstone, we've got the analytical horsepower, the historical information, the resources to do all that. Dan, Jonathan, and Rob will get into much more detail, I think this type of deep, fundamental, bottoms-up analysis gives us the confidence to move quickly into these structured products markets when the market gives you good risk-adjusted returns like we saw in 2018. Finally, kind of on the right side of the page here, it's worth noting that it's fine to talk about all these good ideas, you got to be able to execute.
You got to be able to transact. Blackstone's got great relationships on the street, and we were able to use those relationships effectively in 2018 to execute a lot of trades. We pushed a lot of volume kind of through the system. This is really what we're buying when we buy structured products. What we've tried to lay out here is kind of a more generic format. This applies to CLOs, to CMBS, to ABS. What you see here is on the left side of the page is really the financing at the asset level. That asset could be a building, that asset could be an airplane, that asset could be a company. Usually the senior piece of that structure, which we've kind of simplistically laid out here in terms of senior debt, junior debt, and equity.
Usually, the senior piece of that structure is somewhere around 50% loan-to-value. That means you've got 50% that's below you in the form of junior capital, whether that's debt or equity. What happens is, as many of you know, you take many of those senior positions, you combine them into a broader portfolio. It's that kind of middle bar where you're aggregating a bunch of those different positions. Finally, on the right side there, you're taking that portfolio and you're tranching out the cash flows. You're sequencing the cash flows as they kind of come off of those underlying assets. As you can see here on the right, pretty simplistic. The AAA piece at the top receives the first cash flows, therefore it's more highly rated. AA is the second, and on down the line.
The dotted box there is where we've kind of focused in on for F&G. That's primarily in these areas what we've been buying. A lot of A, BBB, also some AA in there as well. I think what you can see here, hopefully, is that in these structured products, there's really three pieces of protection for us. The first piece is obviously on the left there. At the asset level, you've got substantial subordination. The second piece in the middle box there, you've got a lot of diversity, which helps. Finally, on the right side, you can see within the structure there, particularly where we focus for F&G, you have structural enhancement in the form of junior capital in the BBB tranche and the equity tranche below you.
What that really means is that you've got a margin of safety as it relates to how well those original kind of senior obligations perform. You don't need 100% of those senior obligations to be money good and still have your investment be sound. The next piece here is a little bit more detail or a little bit more specificity around both CLO and CMBS. A couple kind of changes, I think, really since the great financial crisis. First in terms of portfolio qualities, which applies obviously both to CLO and CMBS, is that generically those have improved, meaning that to be included, to go from that kind of asset level financing into the portfolio, those loans need to be higher quality than was previously the case.
For CLO, what that means is that more first liens are included in the deals than was previously the case. For CMBS, what that means is that the LTVs are lower. Additionally, there's been, since the great financial crisis, structural improvement in the form of more subordination. I think the easiest way to see this is if you look at the bars to the right there. The bar on the left side of the right-hand side of the page is the pre-financial crisis CLO. The bar on the right is post-crisis. Pretty easy to see there that at the bottom, the equity tranche, as well as the BB have thickened. Dan will go into a lot more detail on this, but I think it's worth noting here that it may look like a lot. Maybe it does, maybe it doesn't.
It's pretty robust. It's pretty significant. To the tune of, if you assumed that the underlying collateral recovered half of what it's done historically, and you assume that the underlying collateral defaulted at a rate that was twice what we saw during the financial crisis, you'd still be fine in the triple B securities. I think it really speaks to, again, we'll go into more detail on this, it really speaks to how resilient these structures are and how hard they are to break. Finally, I would just say the same enhancement applies to CMBS as well, which Jonathan will get into in more detail. Just kind of rounding out some of the structural improvements that we've noted here is for down at the bottom here. For CLOs, the reinvestment period is decreased.
Really what that means is that you've got a shorter, more defined exposure to the underlying collateral. Your underwriting carries more weight, I would say. CMBS, I think it's worth noting that you've got risk retention. More skin in the game, better alignment of interest, ultimately that should roll through in some of the underwriting that we've seen. Finally, I would just say here certainly a component of the portfolio rotation strategy that we were able to achieve in 2018 was focused on alternatives. I know the company's talked a bit about their alternative strategy. This is kind of the scorecard for that. You can see that on the left there, the amount of funded alternatives increased during the year from 1% of the portfolio to 2% of the portfolio.
That's consistent and in line with the company's stated target of around 5%. The middle piece here, as you can see, is a well-diversified portfolio. We kind of approached this similarly to how we approached the fixed income part of the portfolio in terms of determining what F&G's kind of goals and objectives were. What came out of that was a very diverse portfolio, both across strategies, collateral types, geographies, and vintages. Also important to highlight here that inside of these different pieces of the pie chart are the Blackstone flagship funds, which as you saw on the previous slide, they've demonstrated pretty compelling experience over three decades. Finally, just to note, in terms of the amount of activity, really the ability to increase the funded amount or the way we're able to drive that was going in and obviously increasing commitments.
On the right there, you can see that BIS increased commitments to alternatives during the year, up from $400 million to $1.7 billion. With that, I'll stop. I'll go back to you, Bennett, that was the portfolio highlights.
Thank you very much, Eric. We wanted to drill down a little deeper and give you a little more context and background on both the credit group as well as the real estate group that drives a lot of this activity. GSO, just by way of background, has something like $109 billion of various credit assets under management. It prides itself really on finding unique proprietary deals where you won't find the kinds of securities in our portfolios with other managers, because we are originating a lot of what we do. It's why we need 350 some odd people to go out and source, and diligence, and structure those kinds of transactions. Finally, the DNA at GSO, much like other Blackstone businesses, is all about avoiding big mistakes. Lots of managers can show up with impressive long-term results, but there could be a lot of volatility along the way.
What we pride ourselves on and what we take the greatest sense of satisfaction is minimizing mistakes. As creditors, the term is preserving principal. We want our money back. It's easy to put money out. The art of credit investing is getting the money back. So what we measure ourselves on is our realized loss of principal. Since 1998, we've had about 14 basis points of realized losses across this portfolio of strategies. We're trafficking in some low-rated risky stuff. I think that's the best testimony to our investment process and the quality of the team. As I transition from GSO to BREDS, we're going to hear from Jonathan Pollack in a few minutes. They too are the exact same profile as GSO, but in the real estate business. Big player, 100-plus people.
While I like to brag about the GSO track record on minimizing losses and protecting principal, which I think is without peer in the credit world, our real estate guys are even better, with no realized losses. My hat is off to Jonathan and his colleagues. That sets a pretty high bar for the rest of us. We'll live with that burden. Quite proud of all that we've accomplished with our real estate team. With that, I'm going to turn it over to Dan Smith, and you get the clicker.
Thank you, Bennett. Good morning, everyone. My name's Dan Smith. I'm a Senior Managing Director in GSO. I've been with Bennett since we started the firm over 15 years ago. To his point about consistency and continuity, I going to spend time today talking to you about the CLO investment portfolio that F&G has that we're responsible for managing. I think the expectation is given that CLOs have been caught in the echo chamber of the financial press and pundits, there's probably a lot of questions regarding that. We're going to drill down and give you some details about what we've been doing in this asset class on behalf of F&G, our capabilities, and approach to investing in this space, and why we believe the assets are not only very attractive from a return potential, but have a very sound risk profile.
Given the combination of the underlying assets, senior secured bank loans, the CLO structures themselves, as Eric pointed out, then GSO, we think it's a pretty compelling investment opportunity for F&G. On this first page, we're just going to give you some highlights of the portfolio. We've been investing in CLOs on behalf of F&G for about nine months now. During the time, we've increased the portfolio by about $1.2 billion to a total of $3.3 billion, and in addition to that, we've repositioned roughly another $600 million of assets. Been pretty busy, as Eric said. I think the portfolio today, as you see, has got a book yield of 5.9%. That's up 33 basis points since when we got started investing on behalf of F&G.
I think should be pointed out, 98% of this portfolio is floating rate, structured as three-month LIBOR plus a spread. Today, three-month LIBOR is 260, which means we're roughly 330 basis points over three-month LIBOR in terms of what this credit spread is. That has some relevance we'll talk about in a second. This yield represents, as you saw from Eric's presentation, roughly 171 basis points over the investment-grade index, investment-grade corporate index. We believe that. We're also taking no interest rate risk, the duration risk here is very low. It's all credit risk that you're exposed to in the CLO tranches that we own. I think, most important, as was pointed out previously, we've done all this at the same time that we've reduced the actual risk in the portfolio.
We think empirically, and we'll talk about that, but also as measured by the rating agencies and NAIC specifically. Brought it down to 1.4. I think if you back up and you think about my comment around floating rate. LIBOR, when we started investing in this portfolio, was about 28 basis points less than it is today. Much of the uplift we talk about is actually just the fact that rates have gone up. It's not because we've taken more credit risk in the actual investments that we've bought and/or repositioned. I'll spend a little bit of time talking about GSO in a little bit more detail. I think Bennett has mentioned we're really just in the credit business. For us, what that means is below investment-grade corporate investments both in the U.S. and Europe.
I think if you think about the size of the platform, the assets and the resources and the people we have dedicated to this space, we ascribe to the inch-wide, mile-deep approach to investing. I think in particular, in securitized product, we think that the vast majority of our competitors go the other way. They're a mile wide and an inch deep. We think this is an advantage specifically for us. I oversee the part that's called out, the Liquid Credit Strategies Group, roughly $50 billion of assets under management. This is where the CLO investing activities happen in this part of the GSO world. We've been doing this for quite some time. I think again, the comments around our scale and experience will come out throughout this presentation.
The Liquid Credit Strategies team is investing in broadly syndicated senior secured bank loans, high-yield bonds, and corporate structured securities, which would be CLOs in the U.S. and Europe. It's a global business, but very focused on really the liquid parts of the below investment-grade credit world. Half of our AUM is invested through CLOs. We are the largest sponsor, issuer, and manager of CLOs in the world with $26 billion in AUM. That goes across roughly 47 different CLO transactions. In my tenure, I've sponsored now 120+ CLOs throughout the year. We've been doing this since 1998. Doing it for a very long time. If you think about just the level of activity, as Eric talked about throughout the firm, we issued roughly $7 billion in CLO securities, debt, and equity in 2018 alone.
We're also a large investor in CLO securities, which is specifically what we're talking about here today, with over $5 billion invested throughout the capital structure of CLOs. Mostly in the rated tranches. We've been doing that for the past 11 years. We've got a very large and experienced team, which is fully integrated, and that will be something we'll talk about, but that's not necessarily the case with a lot of our competitors that operate on a more siloed basis. All these attributes we feel are very relevant and important to understanding F&G's CLO investment strategy and how we manage the portfolio. I'll unpack a lot of this as we get further into the presentation. Going down the left side of this page is key principles, attributes, and business assets that GSO and Blackstone overall have.
We think they're very important in understanding what we bring to the table in terms of our capabilities in managing the F&G CLO portfolio. First, core investment philosophy, you heard it from Bennett, it's very important, which is principal preservation. In our parlance, getting your money back or return of capital wins the day, primarily because the return on capital in the fixed income world is contractual. We really worry about getting our money back first. Minimizing mistakes and losses is how you win the long-term gain in this. It just struck me as Eric was talking about the CLO structures, and he started with the top saying the cash flows are apportioned to the triple A and then the double A and on down. We look at it the other way around. We say losses come from the bottom up.
That's where we focus. As we talk about the subordination and the amount of capital below the tranches we own, that's very important because that will sustain the dollar one losses and up to a relatively high point. As we talked about scale, again, you've heard that and you will continue to hear that. Scale is a big differentiating and a distinct advantage for us. Just some examples. We're the largest issuer of CLOs in the world. We know we have a lot of investors, CLO investors that we're competing against in terms of what we're doing for F&G. We know what they're thinking, we know what their concerns are, we know how they view the market, and we importantly know what they're doing in their portfolio, because they're telling us as they're looking at our transactions to invest in.
We also know what's happening in the structures and documents. As a large issuer, we're on the front edge of any changes that are occurring, why they're occurring, how the rating agencies are viewing these transactions, and then any other stakeholders in the CLO universe. As a large manager, we obviously know the challenges and constraints that are faced by our peers who are managing CLOs. What are the pressures that the market is creating for managing these portfolios and what you have to be careful of and aware of. We do this every day, so it's really in our DNA and helps us very much when we're looking at investing in CLOs. Not only do we know how CLOs work, but I think this is a very important fact that we'll get into is the fundamental credit research. We know the underlying assets.
Again, this will be consistent. You'll hear this from Jonathan. That is a key differentiator. We're not just thinking about the portfolio in gross terms. We will actually go in and look at each and every loan. Given the size of our team and the breadth of our investing capabilities, we typically know a vast majority of the individual assets, and we can develop a specific view that's based on fundamental analysis of how that portfolio is going to perform. Then I think, again, experience. We have a very experienced team. People who have been doing this for a long time.
That all sits on an investment process and information that's been well-honed over many years, and is really I think a chassis of people, information that's brought together through an investment process that helps us make the right decisions and generate the very limited losses that Bennett pointed out previously. I think specifically our approach to investing in CLOs, there's three key things that we focus on. First, the assets. As I said, we have the team and the capabilities to go in, tear apart the portfolio, and understand at a very granular level what the risks are as represented by each of the loans that are held in that portfolio. That's where we start. If the portfolio doesn't look right to us, it ends there. We don't take the investment opportunity any further.
If we like the starting portfolio and we feel like that's a good basis upon which to move forward, we'll look at the CLO manager. CLOs are actively managed through time. Eric pointed out they have this concept of a reinvestment period, which means that for a number of years, one, two, three, four years, the manager actually can reinvest principal proceeds. You want to know that they're very capable of selecting good credits and that they're going to put assets that you underwrote today that exist in the portfolio, that they're going to continue with that same approach through time. Understanding how the manager thinks, how they behave, what their style is very important, as well as their resources and capabilities. On top of that, it's incumbent upon us to also follow that portfolio through time.
The good thing about investing in CLOs is huge amount of transparency. At the end of every month, there's a trustee report that gets posted. It's 100-plus pages. It stratifies the portfolio every which way, shows you every trade that happened in the portfolio over that month, gives you pricing, gives you ratings, all the different migrations, weighted average spread, et cetera, in the portfolio. Having good resources in terms of information systems and technology to crunch that information and turn it into things that are useful that allows us to actually monitor that portfolio through time is important. If we see things happening in the portfolio that we're not comfortable with or we start to see names show up that we think have a lot of credit risk, we have the opportunity to exit that investment and move on to something else.
Lastly, I think knowing the structure and documentation is critical. You have to understand what can happen in the portfolio. What are the flexibilities that are granted to the manager? Ultimately in our world, how the losses are going to be apportioned. Picking our spot in the capital structure where we're most comfortable. We talked a lot about the fundamental credit analysis. I think that it would be important for you to know that we're actually good at that. This is really our report card when you consider how we invest in the loan asset class, which is the underlying investment of all these CLOs. Bennett pointed out in the lower left, you can see the 14 basis points of average annual principal loss. That's really if you look at the default rate.
We've experienced roughly 50 basis points of default every year on average since 1998. The market, as measured by the Credit Suisse Leveraged Loan Index, has experienced roughly a 290 basis point average annual default rate. When we've had a mistake, whether it's a default or restructuring, it can be a credit event of varying types. We get back $0.71 on the dollar, and the average for the loan market is roughly $0.605. We default less and we recover more, which is how we get to that 14 basis points of actual average annual loss versus the loan market of about 112 basis points. We are actually good at picking loans. As I said, we've been doing it for a very long time. Just a couple of call-outs on specific years, which this question is generally asked.
In 2008, our default rate was 80 basis points. The market default rate was 290 basis points. In 2009, our default rate went up to 330 basis points. The market went up to 960 basis points. In 2010, we dropped back down to 70 basis points, and the market was 250 basis points. Obviously, an average is an average, but even in times of extreme distress, we're able to keep the default rates quite low in our portfolios. We got a good nose for credit. The question is: how does this translate into our edge in investing in CLOs? Can we actually make that work to our benefit? We'll talk about that in a minute.
I think this was something Eric Schramm alluded to earlier in the presentation, it's just trying to give you a sense for how robust these structures are. If you think about the y-axis, which is the annual loan default rate. That means every year we're assuming that loans default, say, if it's the 5% number, over 5 years, that means 25% of your portfolio will have defaulted. Then the recovery rate is the assumption around what do you get back when you experience a default. You can see the boxes that we show in the upper left, those are just to give you some references of what those numbers have looked like historically in various points of time. GSO's track record is the upper left.
You can see the loan market on average, then you can take one of the worst 5-year periods in the market, which surrounded the financial crisis, which is the third box. As you can see, you can move down defaults. You can go very far down in defaults before at a 60% recovery assumed, you can go all the way down to roughly a 9% annual default rate, which is going to get you close to 50% of your portfolio going kaput over 5 years, and you haven't hit the principal of the BBB tranche. Likewise, if you think that recoveries are going to be bad, you can move across the page, and you have to get to somewhere in the financial crisis 5-year period. You'd have to get to 20%-ish on recoveries before you hit that BBB tranche.
We think that these structures are very robust. I think we believe this has been tested through time, and is a pretty important consideration when we're thinking about investing in CLOs. Don't take this as word for it. If you look at the last 17 years, and you look at Moody's studies on CLO tranches. Just going down the stack at the single A level in the past 17 years, the cumulative impairment rate has been 0. If you go to BBB, it's been 0.1%, and if you go to BB, it's been 0.3%. I'll take one step further and say, if you look at the CLOs of today that are very limited in terms of the collateral, as Eric Schramm said, we have to own 95% of the portfolio.
All the portfolio has to be in secured investments, and 95% has to be in first lien secured. The losses that make up that 0.1 and 0.3 go back to the early 2000s when CLOs actually could have 25% of their portfolio in high-yield bonds. If you exclude that and you look at what they are today and the collateral we're allowed to invest in, those numbers would be 0. I think the history has shown these things to be quite resilient. Importantly, loans, corporate loans have been around for a very long time. It's a sound credit instrument as I think it's been tested for hundreds of years. Banks have been around a long time. Then you have the CLO structure, which has been around quite some time relative to a lot of other securitizations.
This tendency for the press to try to equate subprime and CLOs in the same sentence it's completely erroneous. Subprime was 0 in 2002. It went to $1.5 trillion market by 2006, most of which was securitized. It's just a different animal altogether. Again, you got to realize CLOs are actively managed, and what we've noticed through time, not just our track record but our peers, is they outperform the market loss rates. They're making active decisions around risk mitigation. They're underwriting these credits, and they're going to always should have a better loss rate than what the market does overall, which is just another layer of protection. Lastly, given our focus on the underlying credit, and trying to get through to how this plays out in actually investing in a CLO, we show you this page.
Which if you look, what we've taken is in more recent history, a couple of periods where default rates have spiked in the market. Then we looked through our CLO investments and said what was happening in the portfolios of those CLOs that we held. You can see in November of 2009, at that point, the index had almost 12% of it was in defaulted loans. And if you look through to the CLO portfolios that we owned, it was a 3% default content. Fast-forward January 2015, energy and commodity crisis, defaults picked up to about 3.2% in the market, and in our portfolios, it was 0.2% in the CLOs that we held.
Over time, again, being able to underwrite the collateral, knowing the managers, and understanding these structures, we've been able to significantly reduce the risk on top of what is, what we think, a very sound and robust structure. I did want to point out a couple things that I skipped earlier in the presentation when we were talking about ratings. 94% of the F&G book is rated BBB and better. 60% is A and better. When we go back to those kind of loss curves, that's why we oriented you to the BBB and above. Again, we're owning the higher quality part of that spectrum. With that, I'm going to turn it over to Rob Camacho.
Thanks, Dan. My name's Rob Camacho. I sit in Blackstone Insurance Solutions. I'm a senior managing director. We spent a lot of time today talking about Blackstone's ability to originate proprietary products. We wanted to touch on private structured products specifically. The private structured products we are originating are primarily investment-grade, asset-backed securities that generate excess return to similar quality corporates. F&G's stable liabilities are ideal to finance the assets in the real economy and get paid additional return for illiquidity and complexity, monetizing the key competitive advantage of stable liabilities Raj and Chris talked about earlier. I want to spend a second on that because when you walk in with the Blackstone business card, ability to draw on the Blackstone personnel with a balance sheet like an insurance company balance sheet, issuers are really trying to get you to finance them.
They're willing to give up economics, covenants, really trying to form a relationship. What do we mean by that? How do we do that? Through Blackstone's market footprint and structuring expertise, in combination with those F&G liabilities, we're able to present financing solutions to owners of these assets others simply cannot. This leads to unique, high-quality assets backed by things like aircraft, equipment, consumer, intellectual property. Once we've originated the opportunity, determined that it fits within the guidelines designed by F&G, we draw on that domain expertise of the investment professionals within the entirety of Blackstone to underwrite the fundamentals of each and every asset at the most granular level. I think that's something that everyone has talked about at some point. It's an asset-by-asset, ground-up approach. It's not a model approach.
While we pride ourselves on originating unique products unavailable elsewhere, we maintain the flexibility to purchase traded assets in the public markets, especially in times of dislocation when others are selling that don't have those liabilities. We use the same underwriting approach at that time as well, as you would've seen in December of this past year. As an additional layer of verification, all our private structured products are marked by a third party. Blackstone has originated 25 structured products for F&G since May of 2018 at between 70 and 400 basis points wide of the comparable corporate index. These are actual deals done by the team. As you can see, there are three AAA deals on top of the BBB curve. Many AAs and As all wide to the BBB curve as well. This is possible through active management, which is core to Blackstone's approach.
We believe these opportunities will continue to present themselves and be scalable over time. We're going to dive into the deal starred on the graph, a A and BBB tranche of an aircraft finance deal. We structure investments with multiple layers of protection, another theme across this panel. This starts with a strong collateral package, in this case, high-quality aircraft. Our second layer of protection is a diversified contracted lease payment pool that provides a revenue base for the underlying deal. Our third layer of protection are structural protections. These include covenants around LTV, cash flow, utilization, and again, we're engaging issuers in a very unique way. These are covenants that are just not available in the broadly syndicated market to everyone. This particular deal, Blackstone had a differentiated view on because we were instrumental in launching this platform.
When the current owners that are now outside of Blackstone were looking for a financing solution, we were a natural partner. There's not many other places where you would've launched a platform, somebody else owned it, needed financing, the manager's able to come in and know everything about that platform and have a differentiated view on the manager, as Dan was saying, and really drill into that expertise. How is this deal going to be better than something that is just broadly syndicated? This particular deal was very scalable, as several tranches were a fit for F&G. I think that's important. You want to be able to do a lot of work and then leverage that for the balance sheet of F&G. With that, I'm going to hand it over to my colleague, Jonathan.
Thanks, Rob. My name is Jonathan Pollack, I run our Blackstone Real Estate Debt Strategies business, or BREDS. For the past year or so, we have managed the CMBS portfolio of F&G. I'm going to take a few minutes today to talk about the performance of that portfolio. I'm going to talk about our real estate franchise and the strengths we bring in terms of asset selection and risk management. I'm going to talk a bit about what's going on in the CMBS market, what's changed since the financial crisis, and why we like it as an asset class. For starters, here's the portfolio performance. The numbers really speak for themselves. We've achieved 71 basis points of uplift relative to the portfolio we inherited about a year ago.
As Dan referred to, a lot of that uplift was due to buying investments at 165-basis-point pickup to the relevant investment-grade credit curve on the corporate side of things. We've achieved this through differentiated sourcing capabilities. We bought $2.1 billion of securities in a limited supply market, which I'll talk a bit about later about what's constraining supply. Further constraining our lens is our asset selection criteria, which are based on loan-by-loan analysis of each underlying loan portfolio in each individual CMBS security. Our team spends a lot of time on credit. You'll hear me talk about fundamentals a lot throughout this presentation. The other thing about our sourcing capability is we're one of the most active investors in the CMBS market, so we're able to see opportunities that others aren't.
We traded about $11 billion of CMBS securities last year, it's that ability to take the work that we've done, bring it to bear every trading day, go out into the market and source those securities that we like best that allows us to form a portfolio like this buy this much product in such a supply-constrained market. Importantly, as we refer to throughout the presentation, we did all this without changing the NAIC rating of the portfolio. Blackstone Real Estate was founded in 1991. Today we manage $136 billion of capital across opportunistic equity, core plus equity, the BREDS business that I oversee, with $17 billion of capital focused on credit. You can see our long-term track record down the right side of the page that we're very proud of. This is all fundamental-driven. Our investment strategy is all driven by fundamentals.
We go market by market asset class by asset class, looking for the best underlying performance driven by the key on-the-ground economic activity in each of those markets. We invest through that lens, whether it's an equity transaction, whether it's an opportunistic transaction, whether it's a debt investment, or whether it's a security. The biggest advantage that we have as an investor is the proprietary information that we have that helps inform that fundamental view. From owning all of this real estate, we collect real-time data about leasing activity in all the markets that we're active in, about the performance of hospitality portfolios that we own, we feed that back in real time into the investment process. We report monthly flash reports on each of these different asset classes.
We have quarterly meetings about our entire portfolio, and the investment team attends all of this stuff, and we really constantly reinforce the feedback that helps drive our investment decisions. Again, most importantly, this information is completely proprietary. Again, it informs every single decision we make, whether it's a debt investment, a security, or an equity investment. As you can tell from everything we've talked about today, we feel that covering more ground and acting and investing at scale is a distinct advantage. The way we express that in the BREDS business is by covering and having an investment strategy for every part of the capital structure. Our BXMT business, which is listed on the New York Stock Exchange, is a senior mortgage investing strategy.
We have a fund that focuses on high grade, which would be the more senior mezzanine end of the capital structure, lower yield strategy. We have $6 billion of AUM in high-yield funds that focus on junior mezz, and other types of special situations, and high-yield debt investments in the real estate debt space. We have our liquid securities team, 10 dedicated professionals that are investing for F&G's balance sheet as well as a number of other mandates that manages about $5 billion of AUM. Again, just being able to cover all those different parts of the capital structure, we can see in real time where risk is pricing on a relative basis and really help drive our attention to the places where there's the best value in the marketplace.
Dan had a very similar slide to this, and it started with more or less the same point, which is when you're a credit investor, preservation of capital is job number one. The best data point we can offer you for our credibility in that regard is that in all the lending activities that you saw on the previous slide, we've experienced zero realized losses. So I just want to reemphasize that we are an active direct lender in the real estate market, and through all that loan origination activity, we've had no realized losses in our 11-year history. I talked at length about our proprietary insight, but I'll reemphasize the point. All that real estate that was represented on that prior page, it represents $360 billion of gross owned real estate.
Again, we are very focused all the time about learning what we can from everything we own, and that is completely proprietary to us. I oversee a 114-person global team, including, as I mentioned, 10 people led by Mike Wiebolt, who's here in the audience somewhere, who oversee our liquid investment strategy. Again, we're part of a 500-person, very integrated real estate team. We obsess about communication. Bennett made this point earlier. The best advantage we have is all this information we have, but it's only a good advantage if we share it with each other and we communicate about what we're seeing. We have so many touch points throughout the day and the week. We have weekly investment committees. We have three-times-a-week review committees where we look at live transactions.
Mike's team on the liquid side has an hour-and-a-half weekly risk meeting that's attended by me and a number of the partners from around the real estate business to talk about what are we seeing in liquid securities, what is it telling us about what's going on in the markets, what investments have we made over the past week, and again, F&G's portfolio is discussed in that forum. It's all these touch points and we're sourcing all this information, and staying very collaborative that we think is our biggest edge. We've talked about our deep credit expertise. How do we express that in our liquids business? We have very similar technology to what Dan described for his business to capture and report to ourselves in real time on everything that's happening in each of the underlying CMBS bonds that we own. Dan referred to trustee reports.
We get the same for CMBS, which updates the credit performance of the underlying loans in each portfolio. Our systems automatically update that, flag changes for us that allow us to go back in and re-underwrite loan by loan each individual bond that we focus on. The team has more or less mapped the entire CMBS universe, and we really focus on the credits that we like best. Market knowledge, again, this goes back to this scale investing point, and where we express that in liquids is by being the most active transacting counterparty we can with the marketplace. $11 billion of trades last year across our entire liquids portfolio. That just creates information for us. Where are things trading, where are things pricing, who owns what, and where can we source the things that we like best? Makes us better investors.
Why do we like CMBS and what has changed since the crisis? The main point here is that there's been significant structural and credit improvements since 2007, mainly driven by lessons learned in the financial crisis. For starters, the raw material, the underlying loans, on a weighted average basis, are a lot less levered, over 7 LTV points lower than they were in the previous cycle. You have to burn through 38 points of equity in an individual underlying piece of real estate before a CMBS trust will take a loss associated with that loan. These portfolios have about 50 loans on average in them. The second thing is that the rating agency criteria have also improved dramatically since the crisis, again, based on lessons learned.
You can see that in the credit enhancement chart on the right side of the page, which reflects something Eric showed a little bit earlier, but with specific details for CMBS. You can see that the non-investment-grade part of the capital structure, which provides the loss cushion to the triple Bs and single As that we've been buying for F&G, is almost twice as thick as it was in the prior cycle. In addition to having to burn through 38% of equity on average in the underlying loans, you have to burn through a lot more of the capital structure with losses before you start hitting investment grade. It's really been a collaborative effort of the whole industry, rating agencies, investors, regulators.
I left lenders off this page, but I think they deserve some credit as well for participating in the structural improvements of the market. I was running Deutsche's real estate business at the start of this cycle and was very involved in the first CMBS deals that came out. I just remember a marketplace that was very conscious of delivering a very high-quality product going forward. You can see some of the enhancements that were made 10 years ago that remain the case today. More conservative credit underwriting and structure in the loans. That's not only by the lenders up front, but it's mandated by rating agencies, by investor behavior. Transparency of rating process.
Today, if you issue a CMBS deal, you have to post to a public website that is accessible by all of the rating agencies, even if they're not rating your deal, all of the relevant underlying credit data. Oftentimes, if a rating agency is not rating a deal, they might publish an independent report about their views on that deal. Again, it just keeps everybody honest. Earlier, we talked about risk retention and keeping skin in the game. That's been an important part of, again, just reinforcing these behaviors on the front end when loans are made and securities are structured. Because if you have to sell it to someone that's going to hold it for term, they're going to care deeply about what went into the mix, and so you need to be able to sell them something they're going to want to buy.
Then investor alignment of interests that are built into the documents in a less obvious way, such as operating advisors to represent the securities investors when loans default. The outcome of this is a much more stable issuance environment. Dan referred to the spike in subprime activity that came and went. We had, I would say, an echo boom in the CMBS market. You can see that in those peak years of issuance in 2005, 2006, 2007. Really by taking out some of the structural challenges and by improving underwriting standards, we have a much more sustainable product today. You can see that borne out in issuance numbers where we've peaked at about $100 billion of issuance and have been averaging something in the low 90s for the past several years. With that, I'll hand it back to Chris Blunt to summarize.
Chris, I'll drive the slide.
All right. Great. Jonathan, thank you very much. Before we throw it open to questions, I just wanted to take 2 minutes and try to summarize what do we think the takeaway should be from all of this. We threw a lot of material at you. Again, as a reminder, this spun out of questions that I received from a number of you of give us more data, show us why your level of confidence is so high in the portfolio, and hopefully, we've done that. The first point I would hope you take away is that our investment strategy starts with a fundamental understanding of the liabilities and a very sound capital position. That's the underpinning of everything we do before we turn to the investment portfolio.
The second, you heard it from Raj, you heard it from Jonathan, the whole team, everything with us starts with an assumption and a thorough analysis around downside protection and risk management. Second, Bennett made this point. Blackstone's financially and strategically aligned with F&G and has given significant senior-level attention to the organization. I can attest as the CEO that all the way up to Stephen Schwarzman at Blackstone, the firm is quite engaged, quite supportive of what we're trying to do. Credit decisions have been made assuming there will be cycles and there will be downturns. I think some of our frustration has been, wow, we're getting late in the tooth in the credit cycle. Should we be concerned about your portfolio? We've tried to make the point here that the alpha that you are seeing is coming from scarcity premium.
It's coming from a complexity premium and a bit of a liquidity premium. It's not coming at the expense of unsound credit decisions. This is because of the edge that you have at Blackstone, the breadth, the reach of the firm, the quality of the analysis that goes into the portfolio. The bottom line, and hopefully you took away from all of this, is that we have been able to enhance the yield of the portfolio, but it's not come at the expense of credit. With that, we're going to now open it up to questions. Happy to answer questions on any topic. I'd ask if we could start with those that concern the investment portfolio, since that was the primary purpose of today. Yep.
It's Alex Scott with Goldman Sachs. First question I had was just on ratings migration. You laid out some pretty compelling evidence. I guess even if you're right, if we do go through a crisis and it's performing as expected, what's the risk that these NAIC ratings come down? I know a lot of this stuff is run through, I think like the PIMCO and BlackRock model and so forth. Can you help me think about what that risk is? Because it feels like the liquidity and the probability that you would have to sell something when you don't want to have to sell it is the real risk I should consider here.
Sure. I'll make two comments, and maybe, Raj, I'll have you tackle that, because we have run that analysis of even in extreme scenarios, what could, for example, the RBC hit be to the company? Ironically, there's more exposure as it is for any insurer on the liquid side of the portfolio, we believe, than on the illiquid side. Raj, why don't you talk high level?
Sure. To that end, we have eliminated about half a billion dollars in BBB corporates with a view of migration as probably the greatest risk that we're facing. In terms of actual evidence of what we've done with a portfolio, candidly, that was more heavily weighted in BBB corporates and corporates in general at the last crisis. I'm thinking like 2008, 2009, when I first took the seat. There was never a situation, even as redemptions were increasing in the lapses in the portfolio, that we ever had to sell a security at a loss to meet that. In terms of the CLO migration and maybe sort of the CMBS migration, maybe I'll sort of turn it to the GSO and the BREDS teams to kind of walk us through that.
Sure. I think on CLOs, even as we experienced through the financial crisis, the actual downgrading of CLO securities was better than individual corporate experience. I think that's partly because one, the ratings methodology they use accounts for a lot of pre-assumed losses. There is an assumption that you're going to have defaults in the portfolio, and there's an assumption that you are going to lose capital. The structure is built based on that. You really need to have a sustained experience of exceeding those losses before the rating agencies really start to come in and downgrade. I think what we've seen historically is in these actively managed portfolios, it's just not been the case. It was relatively stable from a ratings basis.
I would assume, again, structural improvements and some of the other things that have transpired post-crisis, that that's probably even more so the case today. In CLOs, I would say the liquidity is actually relatively good. These aren't one-way tickets. We do have the ability to actively manage this portfolio in terms of that concern.
Maybe my follow-up question. On the CLO portfolio, could you provide some commentary just on what you see in the underlying loans? I know like the Shared National Credit Program was really focused on leverage and it becoming high for a while. They seemed concerned. I don't have as much perspective on it, so I'd just be interested in, you mentioned the structural aspects that have improved with CLOs, but is there any deterioration in the actual underlying credits?
Sure. I think a lot of the conversation, one is we can talk about leverage and kind of the fundamental performance of the universe of companies that we're looking at in the loan market. The other is the debate around covenants and your protections as lenders. Let's start with the fundamental side of things. I think if you, again, as I stated at the beginning, the echo chamber, which is the financial press, they will look at a specific transaction that is in market today. In particular, they were looking at a handful of very large LBOs, which are usually the most aggressive transactions. Again, knowing that leverage buyouts represent about 35% of the loan market, they're not the majority. Anyway, those get the headlines.
Those, given that they're companies owned by financial sponsors who are very savvy, and a lot of times their returns are predicated on getting extremely attractive financing packages. They may have more leverage than you would typically find in the market. The press will seize on that, and the presumption is the whole market looks like that. That's not the case. We've actually seen leverage levels decline in the market. On a secondary basis, if you look at the $1.3 trillion outstanding, leverage has come down, interest coverage is at all-time highs, maturities have been extended through the refinancing, and cost capital has been lowered. Those are all bullish things from a credit perspective. Yes, you can always find a particular transaction that looks that you're going to look askance at, but that's not the market. The market looks a lot better than that.
On the covenant-
Well, Alex, I might want to just chime in as well. We don't deny that there's certain deals that shouldn't have been done, that have too much leverage, that have very liberal accounting of what's pro forma EBITDA for supposed synergies. That exists. It's most pronounced in big cap LBOs, which represents somewhere between 10% and 20% of this leveraged loan market, just to put it in context. There's 80% of a $1.2 trillion market, trillion dollars, of stuff that's kind of sound, like Dan's referring to. I think it's just important to, one, dimension what the press is talking about. We recognize that those are deals we don't have to buy. It's nice having a market presence where you can use some discretion. We don't run our business off an algorithm that says buy one of every loan.
There's actually quite a bit of credit analysis, and Dan's about to talk about covenant analysis, which is another element of this. It's easy for Blackstone to get higher allocations of the deals that we want to put into the portfolios, and that's the other element of it. We have this large presence. We are the largest buyer of corporate non-investment grade debt in the world. When we want something, we're going to get a better percentage of those kind of deals than the next guy.
Just to be fair, the market's not full of a bunch of scarecrows that don't think about what they're doing. Those businesses that do have the aggressive capital structures, et cetera, they're generally world-class businesses that are dominant in their space. There's fundamental credit reasons why people are willing to give them the benefit of the doubt. Needless to say, they do carry characteristics that are probably not representative of the overall market. Covenants, I think, is the next question. There's a lot of confusion around covenant light and then all your other covenants. Covenant light is really just referring to maintenance covenants versus no maintenance covenants. That's gone, and that's not coming back. The fact that we don't have maintenance covenants anymore is really a function of the market. Banks don't hold any of these loans anymore. It's just like the bond market.
They originate to syndicate, and those maintenance covenants are really a relic of a relationship between a bank and a borrower. In our direct lending business, we want those. We don't have liquidity, and it's a bilateral agreement. Those make sense in those arrangements. Where you have 60 lenders that change hands every day, it's not necessarily logical. Those are gone. The other bit of covenants is all the other things that protect you as a lender. Dividends, restricted payments, asset sale proceeds, those types of things, which are important and we do look at. As in any market, it swings between who's got more power, either the borrower or the lender. In the periods of time, in particular over the last 18 months, there have been periods of time where the borrower has had the upper hand, and those covenants have gotten looser.
In some cases of these big LBOs, significantly looser. We take those into consideration when we make an investment. It's part of the analysis, and it's an important one. We actually now, in our analysis and our database of companies and credits we look at, we have our own view, a credit risk factor that we assign, and we also have a document score that we assign, which says our protections as a lender are strong, medium, or weak. When we look at any of our portfolios or anyone else's portfolios with a CLO, we come up with a view on a credit, and we know which of those names are actually the ones that are most exposed from a protection perspective.
Thanks. Yep. John.
Thank you. John Nadel from UBS. I think my first question is probably more for Raj. If I think back to last year, Athene did an investor day where they focused a lot of their time on the investment portfolio as well, for good reason. One of the things they laid out was that they run a big stress scenario against their portfolio. They showed us 116 basis points of expected losses in a relatively severe stress scenario. I assume you guys do a lot of that internally, but I don't see anything in the report here. I was just wondering if you could articulate what we should expect from a stress, a severe recession-
Sure
some kind of scenario like that.
We haven't shared that information here. It's something that I think we'll be working on to share more, provide more detail. I will share maybe sort of two data points. The first is the initial view on the credit VAR, so where we are now versus where we were before, which we have seen an improvement, and that's information that we can ask BlackRock to provide on an independent basis. Where we are today versus where we were a year ago, the credit VAR has gone down, which is just one data point. One thing that we have been looking at is sort of RBC impact. We looked at the portfolio, we looked at what this composition looks like today. We looked at it in 2008, 2009. I think the rough numbers was about 60 basis points, 60 points rather, of RBC potential drift.
From the portfolio positioning right now at 470 sort of RBC points, we feel that's a very solid position to be in.
Okay, that's helpful. I guess another broad question. I guess on his way out here, and an investment guy by background, MetLife's CEO is, I think, dropping a little bit of a bomb on the Athene and the F&Gs and maybe a few others of the world, highlighting that regulators should be paying very close attention to what all of you are doing on the investment side. I guess, how do you respond to that? I assume actually several of you have actually dealt with him directly in the past. How do you respond to that if the press comes calling on you and regulators start calling on you?
Yeah, I'll start with that. I'll bite my tongue a little bit. I guess what I would say is where we focus our time is on our own portfolio, running our own company, making sure we have the best life and annuity company on the planet. I think you've heard from the team here. We have utmost confidence in the portfolio that we've built for very good reason. We've given you great granularity around what's in the portfolio, the process that goes into making those decisions. Most importantly, I'd say we're incredibly comfortable. I would say our regulator is comfortable. We don't get concerning questions. We're in constant dialogue. I'm probably the only CEO whose regulator is in the same elevator bank, so if you ever have a question, all I got to do is take the elevator up.
I believe our rating agencies are comfortable, we're not getting these questions. It's candidly been more a little bit started by popular press around some of the things at the margin, which Dan referenced. To be honest, I don't have spare time to think about how everyone else should run their insurance company, but we're quite confident in how we run ours.
If I can just sneak one last one in. 94%, I believe, of the CLO portfolio, triple B or better. Just remind us how big the portfolio is, $three-point something billion.
3.3.
If I think about Pru, a much larger company. They showed us their CLO portfolio, 100% triple A, right? If I use, I think, the data on slide 43, it looks like you'd give up maybe 100 to 150 basis points of spread if you did that. I think you'd have an audience that would be far more comfortable with the portfolio and maybe a better valuation for the stock. I'm just curious how you think about that juxtaposition. That's a balancing act, and obviously, you guys need to make those decisions.
Raj, you want to start with that?
From our perspective, when we sort of think about the allocation away from triple B and single A corporates into triple B and single A-rated tranches of CLOs, we think that's the right asset allocation to make for several reasons. If there's any one takeaway that we think we've got this asset class right, if you look at the track record of our active manager, we think they're absolutely building the right bottoms-up portfolio. Stepping back for a second, when we sort of think about how we want to attach to the top part of a corporate capital structure, levered loans, from a cap and adjusted basis, CLOs, from our perspective, are the best way to do it. We are in the net spread lending business, right?
We really sort of think about how to make the most efficient use of that capital and provide a defensible and expanding net spread for our business. CLOs relative to what we can invest in triple B and single A corporates, to us, are the better risk-adjusted return.
The only thing I'd add to that is, I think what strikes me as ironic is when you think about what Rob Camacho talked about, these are real economy financings. They're hard assets, reasonable LTVs relative to sort of an unsecured promise from a corporation. To me, it's sort of back to the future old-fashioned lending with assets and cash flows that you can go analyze. It's just, again, it's odd to me, and I understand where it comes from. Anytime you have an increase in portfolio yield, we've all been taught you can't do that without taking on more risk. I think, again, the point we've tried to make is the risk that's being taken on, we do not believe is credit.
It's the risk of scarcity, complexity, liquidity, and we think that's a great trade, particularly if I go back to what our liabilities are.
Listen, I'm with you. I think you guys have laid out obviously some terrific history here and some really good performance, right? I think it is confidence-inspiring. You talk about transparency of all the loans you guys get to see.
Yeah.
It's opaque to us, right?
Which is why I think the premium exists because it's opaque to, frankly, most of our competitors that invest in this stuff as well. They're dealing in weighted average spread of the portfolio, weighted average credit, and then they're applying a gross assumption to the performance of that pool, whatever it is, because they don't know the actual underlying names. Their assumptions might be much worse, they might be much better. There's a trepidation when your dials are huge and you're making assumptions like that. Our confidence and I think are based on our skills and our platforms that really allow us to go in from the bottom up, and I think that makes a big difference.
Yeah, I think back to the comment from the other CEO, I don't have any problem with that. Are there some folks that may take it too far or abuse it? I'm sure there are. That's the history of financial services, unfortunately. I guess, again, the only thing we can point to is our own portfolio and what's our confidence level there.
Thank you.
Just one other thing, John, with regard to your question, why don't we just go all Triple A? Our portfolio construction is a dynamic give and take based on market conditions, based on credit rating, based on Regulatory Capital considerations, based on what the rating agencies have to say. We're going to change it over time. We may rotate more into Triple A at a moment. Right now, the portfolio construction represents what we see in the marketplace today.
Yeah.
We do believe that we're getting paid sufficiently for taking on that incremental credit risk.
I will note, and there's data that we have, and we didn't make it into this presentation, that looks at the volume of purchase over the prior year. There's a lot of, as Bennett mentioned, a lot of give and take, a lot of back and forth between the organizations to make sure that the guidelines that we set up for each of these mandates reflect our capital charge and our view of what we achieve for the business. We were probably a little bit slower in getting the portfolio rotated last year, as you guys probably know. At the end of the year, when we saw spreads begin to widen out, there was a real opportunity for us to actually improve the average quality of the CLO portfolio as those spreads widened. We're not buying mechanically every single day what the market provides.
We have a mandate. We know what it's going to look like. That target portfolio actually ended up being a higher quality average portfolio than we originally intended based on market conditions.
Great. Thank you so much.
I just wanted to add, Alex, I think I left the punchline off your question around the covenant point, which was, I think at a high level, if you think about it, if covenants are looser, that means there's going to be fewer defaults because those are the things that are the stumbling blocks for the borrowers. If you do have a default, the recovery would be worse. If you think about those loss curves, you can say that defaults are going to be the same as the financial crisis, but recoveries are going to be much worse because of that. You can look how much worse they have to be before it hurts us in these structures. I think the big picture, we would say fewer defaults, but worse results in terms of recovery for the market.
I don't necessarily think we're going to follow that. That would be the way I would think about it.
Erik.
Thank you. Erik Bass with Autonomous Research. Two questions about the investment leverage within your portfolio. First, it gets a lot of attention from investors. Do you think it is a relevant risk metric, particularly on a GAAP basis? Secondly, given the higher leverage that's inherent within an annuity business, how do you factor that into your portfolio allocations?
Sure. In terms of investment leverage, we're sort of thinking about our position sizes, our capital against our statutory capital. Again, we're in sort of the net spread business. We do make those allocations accordingly. Sorry, the second question was about portfolio allocation?
Just given that there's a higher leverage or just investments over your GAAP equity, how do you factor that into the risk parameters or the portfolio allocations that you choose to make? I guess more broadly is looking at investments as a percentage of shareholders' equity. Do you think that's a relevant risk metric?
I think it is a relevant risk metric. We think about our high-risk assets as a percentage of total adjusted capital. We've been working those lower as we think about the rotation out of triple B corporates. It's something that we watch and we look at investment committee every single month. I don't know. I'm sort of looking at Dennis. Is there anything that you want to provide in terms of overall asset leverage?
Look, I think our average, whether you look at it on a GAAP or a stat basis, is probably in the low teens. I think it's a relevant metric to look at it assets to GAAP or stat surplus. I think more importantly is to look at the various capital models that we manage to. Whether you're looking at AM Best or S&P's model, RBC, I think a better measure is where are you under each of those models individually in the aggregate. I just think they're better at predicting where and to what degree the level of capital you should hold really sits.
Obviously important to adjust for what is that liability max within the company.
Yep.
On slide 37, you look at each of the 200 individual companies in a CLO portfolio, you kind of allude that it takes a lot of people to do that. How many other people in the business do you think have the infrastructure to do that?
I think there are some, you count them on one hand. We have some competitors that look like us. I think it's not just having the resources, but it's really, I think even beyond that, it's having them integrated and actually having the information systems and technology to be able to bring all that together. It is a tremendous, and I think the same is true in Jonathan's business. It is a tremendous amount of information, both thinking about the fundamental credit information associated with each one of those loans, the companies behind them, and then all the relevant information in terms of the portfolio structure, the progression, and migration in those underlying portfolios over time that we have to analyze. It's people, it's a good process, and it's great technology that allows you to kind of do that.
I think that is a very small universe. I would say my view to answer the question about the gentleman from MetLife is, if I can't look through and I don't know what's in that portfolio, then yeah, I want to own triple A because I need to protect myself against the unknown, and I'm going to use the structure to do that. We own all these companies ourselves. We own these loans, and we're willing to invest in them on a heads-up basis. We should be, if we can find a good portfolio managed by someone we respect, we should be willing to invest in that same portfolio with all that subordination. That's kind of our approach. I do think it's not many people out there.
Yep.
Thanks. A lot of the focus obviously today has been on the value that Blackstone brings to F&G relationship. I'd like to frame this question a little bit from the perspective of Blackstone in terms of the value that being involved in an insurance business, the value that BIS can bring to Blackstone. Maybe the simplest and easiest, not easiest, but best solution would be for stock to turn up 50% and you can go buy a bunch of stuff and grow assets with a great acquisition currency. Outside of that, it seems like there are a bunch of different potential revenue streams that could be touched, or other ways for Blackstone to monetize being involved in insurance. For example, leveraging the Blackstone brand into retail product distribution, which I think you've started to attach to some of your product. Reinsurance structures or ceding business or advisory fees.
I list a handful in here. When you sit around the table and think about ways that you can monetize being involved in insurance, does it extend beyond just growing assets through F&G? If so, what are the potential avenues?
I'm happy to address that. I'm probably in the unique position as the first head of BIS and now the CEO of F&G. I would say we haven't scratched the surface yet on how we leverage and monetize the Blackstone relationship. There's obvious places, M&A sourcing, analytical support, pockets of capital. Clearly, we've hit here the just very tangible sourcing of attractive investment-grade assets. You mentioned brand. We have not yet done that. We intend to do that to figure out how we leverage that. Now that we have the upgrade, we've got alternative channels that we can go into. I had the privilege of going to the Blackstone CEO conference a couple of weeks ago, other than having to now get a visitor's badge, which was a little odd for me, but it was a fantastic experience.
I mean, the sharing across the portfolio companies, insights around data and analytics that can be leveraged. Yeah, I could probably spend an hour on this topic, I would say we have not fully, in any way, shape, or form, leveraged the power of the relationship. I think you're seeing the most tangible evidence of that, which is on the investment portfolio, obviously around M&A sourcing and support. We are now building out those plans of how we can leverage some of those other areas that you mentioned.
I would just add that I go back to the alignment slide. We have $625 million invested in F&G. We've made our bet, this is the life and annuity company that we're going to want to get behind and support and help them grow and prosper any which way we can.
Thanks. I appreciate the response. The motivation for the question was less around necessarily a conflict of interest and more around 10 years from now, do you think when you look at the earning streams that BIS brings in, that they will solely be comprised of an asset management fee earned for managing a portfolio, or are there other fee streams that you can tack on and lever your entrance into a retail insurance business?
Well, from a Blackstone perspective, our mission today is to help create bespoke portfolios that can outperform. Where that leads us, we don't know. I do think Blackstone will have, and we have today, other insurance company clients, where we're doing similar kinds of origination of what we think of as smart investments. There could theoretically be other things down the road, right now, all we want to do is build the right foundation, build the right team here at BIS, make sure that we're doing things the right way, we'll see what's out there. Right now, the motivation is pretty simple. How do we harness the power of Blackstone to help create investment product flow to insurance company clients? We do get paid an asset management fee, which is quite valuable to Blackstone.
If we do that right, I think there's just a lot more that we can do to help scale F&G as well as our other insurance company clients.
We have one in the back.
Thanks. P.D. Singh here from JP Morgan. Looking at the asset portfolios of blocks for potential M&A, do you find that there is still significant room for yield improvement by applying Blackstone's capabilities, or have you found that other companies have already moved out further on the risk curves themselves?
Great question. I'll start, and everybody will probably want to chime in on that one. Look, that's, we believe, our sustainable competitive advantage. Yes, we do see yield uplift opportunity. That's what tends to drive the value creation. That's where we want to make our stand and what we think we're so good at. I would say yes, we still see very interesting opportunities in the market where we think we can be quite competitive and generate good returns. Maybe I said it all, but yes.
The second question is, the outlook for short-term interest rates has changed materially in recent weeks. I was just wondering if that was contemplated in your repositioning or was the repositioning more about getting spread? Just given where things are now and the outlook for short-term rates, does this change anything about your investment decisions moving forward?
Sure. I'll take that. We're not really in the business of sort of making big rate bets in the portfolio, other than the fact that we have very consciously de-risked our BBB corporates over the last year or so and allocated into structured assets. When we think about the portfolio going forward, the lion's share of the repositioning is behind us. We talked about phase one, phase two. Phase two is done. When we think about investment activity for the coming year, it's really a function of putting new premium to work. On the new premium mix, we continue to allocate to the GSO and the BREDS team. We'll continue to basically put those tranches of new business money to work in that sort of target asset mix. We haven't made material changes in our rate posture based on movement of rates.
I will say that as we think about the liability profile potentially changing as we get into more of the life channel with the ratings upgrade, it potentially gives us more leverage to pull to think about what are the assets that fit along the liability profile. Right? That's ultimately going to govern the asset decision for this portfolio.
I think you've heard Raj say this before, the driving factor is just flexibility. Right? We want to have a portfolio that can pivot in different environments as opposed to trying to make a more active bet, certainly around interest rates, where I think I've yet to meet the person that has a sustainable edge in predicting interest rates. No questions? Yep.
John Barnidge, Sandler O'Neill. You briefly touched on it a couple of questions ago, alternative distribution channels, which ones do you anticipate hitting first?
Yeah. Thank you. The lowest hanging fruit for us is obviously the independent broker-dealer market. One development that I think has caught some people by surprise, the IMOs or independent marketing organizations that we market through today, themselves are targeting the broker-dealer market. Those business models have really evolved from solely selling through independent agents to many of them now have their own RIA division, their own broker-dealer division. The easiest thing for us is we have incredibly strong relationships. I just spent two days with our top IMOs in Dallas last week. Great enthusiasm, love the F&G story, love the Blackstone partnership with F&G. Probably step one, the easiest is simply being part of those organizations' efforts to go into BD. Banks are probably a little bit further out for us, then I alluded to this on a previous, the last earnings call.
This issue of, well, at A- there are certain channels you can't access. That is probably true, if you think about what we bring to the table, a distinct, sustainable, competitive edge around investments, the partnership with Blackstone, if that is the last gating factor, we can probably find a carrier with a higher rating where we can be more of an Intel Inside reinsurance provider. That's something else that we're exploring. I would say it's independent broker-dealers, then it's probably banks, then perhaps ultimately some of the national broker-dealers.
Is the thought still that you would need to reinsure offshore roughly $8 billion of AUM to drive the tax rate down to 15%?
Yep.
Oh, sorry. Last question. Now that we've gone through the repositioning two-thirds and maybe lessons learned, do you think in a much smaller block we could accomplish this quicker? What do you think the average repo would be?
It's a great question. Some of it's size and some of it is frankly the outlook of the liability mix, I'll let Raj maybe speculate on that. Can we do it quicker? I think the answer is unquestionably yes. Anytime you do something for the second time, you're just going to be smoother and faster. We have done a lot of debriefing as a team on both sides around what could have gone better, candidly, I think it went really, really well. Even where we had a little cash drag, I think we more than made up for it. Some of that might've been luck, some of that was the timing of being in the markets.
We talk constantly, the two teams, we believe this is something that will prove to be a competitive advantage for us of doing the smart rotation, also being able to do it quickly enough that you get the full benefit of doing that. I don't know if anyone wants to.
Yeah, I'll chime in. The plumbing's built. Right? The plumbing's built. This team has been a fantastic partner. I've been at the company for 10 years on top of this liability profile. We traded $11 billion worth of assets last year while remaining a public company. Repositioned the portfolio, improving the portfolio yield, being supported from distribution, getting the ratings upgrade. There was a lot that was going on, I really feel like the plumbing works very, very well. There's a fantastic alignment with the investment management agreement, the SMAs that sort of drive the management of each of these verticals. We speak all the time. We have a roadmap on what we think is achievable for target portfolios. We revisit that roadmap. Yeah, I feel like the muscle memory is very strong within both organizations.
It's always encouraging to have conversations with folks where they look at the proof statement of what this portfolio looks like as indicative potentially of what you could get on the target portfolio.
I'll just say one more thing. There's a forum at Blackstone called the Global Credit Origination Forum that meets weekly, and it's the most senior capital markets investors across Blackstone with a sole mission of a focus on insurance and specifically this F&G portfolio. I would say when it was first convened, it was a bunch of super smart credit guys with all sorts of great ideas and Raj and I sort of explaining how insurance works, it's different, NAIC rules, capital limitations. That group has evolved in a way that is just unbelievable. To see people that frankly weren't all that focused on insurance now educating each other about different NAIC capital charges. I'm a nerd, but it brings tears to my eyes, and I think Raj's. Yep. Alex.
Thanks for taking the follow-up. It's Alex Scott, Goldman Sachs. First question I had was just, when I think about the deal pipeline, it seems pretty robust. I think it's also gotten pretty competitive. To what extent is the ability to go out and get more yield being priced into deals? Could you just remind us what your levers are to fund deals, just in terms of, I think you've commented on the excess capital before, potential reinsurance sidecars, that sort of thing. Would you issue equity? Any color you can provide on how you think about funding.
Sure. Maybe just a couple comments. I'll let my colleagues weigh in here. I would say, yes, there's a lot of players chasing pretty much every deal, but depending on what the liability is and what the lever is for return, I think the universe gets fairly quickly down to, it seems like, a similar group of players, right? We're not the admin provider, right? If the key strength is squeezing out operating costs, that's not a deal that frankly we're going to win or probably even be chasing. It's going to be the deals where the investment return matters. I would say, not only do we have, I think, unparalleled sourcing capability, Blackstone is, I think, the best sponsor you could have in this space, but we're starting with a portfolio that's $25 billion, not $100 or $200 billion of AUM.
The ability to source $6 billion of attractive spread, structured product, and other types of investment-grade product is hugely impactful for us. Someday we hope to have the dilemma of we're $120 or $150 billion, and maybe it'll be a little less impactful. Right now, it is a very, very powerful lever. To the how do we source deals? We talked a lot about Blackstone, but keep in mind, we have CC Capital, Chin's organization. We have the folks at Fidelity National. I've said this before, I can't imagine an insurance company, particularly one of $25 billion, has the collective M&A firepower that we have. That's sourcing channels everywhere. We mentioned the GCOF. Tony James on the liability side convenes dealmakers with Blackstone that touch the insurance space for a regular sit-down around where's the activity that's happening. It's vast.
Could you touch on the funding piece of it? Just thinking about your ability to. Obviously, you have excess capital. Are there other things you could do? I think just the valuation where it is probably complicates things. Any color you can provide.
Sure. Dennis, maybe I'll let you tackle that. I would say right now, we have roughly $250 million of excess capital. There's obviously some capital optimization things that we can do to make that number a bit bigger, some borrowing capacity, et cetera.
We've got about $250 million of excess readily deployable capital on the balance sheet. We've probably got at least that much, maybe more in reinsurance capacity with structures we put into place to be able to use as needed at a very cost-efficient price, similar to the deal we did in the fourth quarter with our partner. I would say there are true other additional third-party reinsurance where if we wanted a deal and perhaps it had something in there that we weren't interested in retaining on our balance sheet, or we wanted to put off a portion of that for a time being or even permanently, we could partner up with any number of third parties and I think pretty much tackle a deal of anything that we see in the pipeline today or that could reasonably come to market over near term.
Great. John, I think you had another?
I was going to ask you about a hypothetical Allstate deal. We'll pass on that. The last question from me was, I think on the conference call, you guys had talked about a 4.75% investment portfolio yield on a run rate. Given how much has happened in credit markets, is that still a reasonable way to think about where the portfolio lies? I suspect it is. You're probably not turning over too much.
Yeah, that's a good starting point. That's sort of where we were exiting at the end of last year with the bulk of our rotation complete.
Yep.
As I mentioned earlier, we're not really shifting our asset mix around based on what rates are doing. Yeah, it's a pretty good starting point.
It's important to say, too, when we say it's largely done, I guess what we mean by that is we will constantly be looking to improve the portfolio. What we talked about the de-risk of the triple Bs, there was a window to sell down some financials and energies in the BBB- category. It's just a prudent thing to do, regardless of what the yield impact was. It just so happened we were in an environment we could do that in a way that was yield neutral, and we felt like we improved the credit profile. I just want to be clear, we're not actively trading the portfolio, but as we see relative value opportunities, we're going to continue to improve it.
Yeah. To Chris's point, we were very deliberate at the end of a year ago, sort of calling out the different phases of the repositioning for people to kind of see how the ROE would emerge as part of this very conscious portfolio shift. Wherever possible, you ought to be doing whatever you can to improve the quality of portfolio.
Right. Improve the downside protection, make the shifts that we've been making over the last year, we continue to see opportunity to do so with this BBB de-risk. The market will give us opportunities to potentially build more and more cushion. We sort of think about having this portfolio be durable all weather, to kind of protect and defend the spread.
Then one last follow-up, Raj. If the next move by the Fed is lower let's say the curve just follows.
Yep.
If we thought about the impact on the floating rate piece of the portfolio, how should we translate a 25 basis point lower yield on the floaters into an investment income path, and over what period of time?
I think the rough number is just that 25 higher is about $5 million-$8 million of pickup of NII was sort of the rough number.
Just the reverse.
I guess I'll answer this in a couple of different ways, and I'll sort of maybe ask Dan about his view on the refi environment as if we get 25 lower on rates. We're not really doing a whole lot in terms of the portfolio, like anticipating a move lower in rates. I think one situation that one change in our sort of portfolio composition versus sort of about a year or so ago is that as the curve has flattened, previously before the Blackstone partnership, we had sort of a paucity of spready assets to invest in at the shorter end of the curve. We don't think that's the case right now. Dan, in terms of 25 lower, CLO refi activity, a view on that?
Well, I think if you do have that, you probably have spreads wider, because the data that would support that move would probably not be as kind for credit. As Raj alluded to, there has been a fair amount of refinancing activity in the CLO block where CLOs are able to, just like a company, basically, after a two-year non-call period, they can refinance their liabilities. What we've seen as spreads have been contracting, that's been a pretty active piece of the pie in terms of the investment puzzle and facilitate. I said we repositioned about $600 million of the existing portfolio in the last nine months. It was really reinvesting, basically, those types of proceeds. That would stop. In my view, I would assume that would slow down quite a bit. That would be supportive of the kind of book yield.
Thank you.
Okay.
I want to be sensitive to time. I know we've gone over noon. Folks might be getting a little hungry. Any last question?
Thank you. John Barnidge, Piper Sandler. Could you talk about the LTC disposal market activity in that, and if you still have any interest in getting rid of that small block?
Sure.
Thank you.
Look, I think it's like anything else. If it's economically attractive to do that's something that would be considered. In terms of marketing the activity, there does seem to be more activity taking place. I don't know if Dennis, anything you want to add to that?
No. I think I'm good.
Dennis concurs with my non-answer. Awesome. I'm just going to wrap up again and just, one, obviously we're pleased with the progress of the company. Greatly appreciate it. I know it's a big investment of time. I hope this hit the mark. If it didn't, your feedback would be really helpful. If there's more data that we can give you into the portfolio or ratios that would be helpful, please keep the questions coming. We're happy to have this be an ongoing dialogue. Again, thanks for your interest and your support of the company.