Security Benefit Is Todd Boehly's Bank For Deals

By Michael Hooper


Security Benefit has become Todd Boehly's source of cash for investment deals.

Similar to Warren Buffett at Berkshire Hathaway, Boehly is using an insurance company's cash to make bets on other investments.

Security Benefit has invested in assets managed by Eldridge Industries, including real estate in Los Angeles like the Beverly Hilton, media companies like Dick Clark Productions and the Hollywood Reporter, plus the Los Angeles Dodgers. Eldridge also has invested in NPC International in Overland Park, Kan., which owns 1,237 Pizza Huts, plus 394 Wendy's Restaurants. NPC was founded by Gene Bicknell of Kansas.

Boehly, 45, is chairman and chief executive officer of Eldridge Industries LLC, which owns Security Benefit and SE2, both based in Topeka. He is also a 20% owner of the Los Angeles Dodgers. 

Eldridge Industries  describes itself as a private investment firm that manages businesses across diversified industries, headquartered in Greenwich, CT, with offices in New York, London, and Beverly Hills. 

Boehly and Guggenheim Partners invested some $400 million into Security Benefit in 2010 when the company was struggling during the financial crisis that began in 2008. Now Security Benefit earns nearly that amount of money in profit every year. Boehly later bought Security Benefit from  Guggenheim and put it inside of Eldridge Industries, effective Feb. 1, 2017.

The proceeds from the sale of annuities sold by Security Benefit are used for investments. The strategy is to make a high enough return to cover the expenses and obligations of each annuity with profit leftover for Security Benefit. The income from mortgages, bonds and investments provide cash flow to pay for annuity obligations.

In 2018, Security Benefit earned $370 million. And in 2017, the company earned $388 million (which does not include the month of January 2017, when it was still controlled by Guggenheim), according to the company's filing with the SEC. That document shows Security Benefit has a book of $3.2 billion in "related-party transactions," mortgages and investments in media, hotels and real estate in Los Angeles and Europe.

Page 98 of the SEC filing says the $3.2 billion in "related-party transactions" are investments in related parties, and are also included in mortgage loans and fixed maturity investments under consolidated balance sheets.

For example, Security Benefit listed investment of $215 million to American Media & Entertainment, LLC, a Los Angeles-based media group. Security Benefit owns a piece of KLAC-AM 570 in Los Angeles.

Security Benefit also provided $351.6 million to American Media Productions, LLC, a startup media firm launched by the Los Angeles Dodgers. Security Benefit began its partnership with the Los Angeles Dodgers in 2014. The Security Benefit Field Level includes 11,000 seats in the stadium.

Security Benefit provided $595 million to Cain International LLC, a real estate investment group that owns the Waldorf Astoria Beverly Hills and the Beverly Hilton, as well as properties in Europe.  

Many of the Security Benefit investments are to CBAM LTD, an Eldridge Industries company that is an alternative investment adviser and manager of collateralized loan obligations. CBAM has about $11 billion of assets under management, a lot of it from Security Benefit.

The book of $3.2 billion in investments/mortgages is just under the $3.3 billion in equity in Security Benefit. That seems a bit high of insider-related loans relative to the total assets and total equity in the company, said David Tangeman, a Houston accountant and native of Kansas. It's not a problem if the securities perform well.

Eldridge Industries is named after the Eldridge Hotel in Lawrence, according to an article by Barrons. When Boehly first came to Topeka in 2010, the hotel where he was supposed to stay was closed at the front door, when he arrived in the dark, early morning, the article said. So he went across the street and got a room at another hotel. But that room was smoky. So he took some blankets and spent the night on a park bench. The next time he came for a visit, he got a room at the Eldridge Hotel in Lawrence, the article said.

Another way Eldridge Industries benefits from Security Benefit is by offering financial advisory services, for which Security Benefit paid $93.9 million in 2018 to Eldridge. Eldridge also has received $30 million in dividends in 2018 and $20 million in dividends in 2017 from Security Benefit. Despite these payments, Security Benefit has received about $950 million in new capital from Eldridge in the past two years, to support the growth of Security Benefit and improve its ratings.

The improvement of the balance sheet has earned the company excellent financial strength ratings by Standard & Poor's and A.M. Best, both offering A- ratings. The ratings have steadily improved since 2009 during the financial crisis.

Security Benefit also filed financial information to regulators in Kansas.

Security Benefit has about 1,300 employees with about 1,100 in Kansas. The firm focuses on the U.S. retirement market with fixed, fixed-indexed and variable annuities and mutual funds.

The Standard & Poor's 500 Index did not perform well in 2018 dropping -4.38%. And while stocks didn't do well in 2018, most bonds didn't fair much better. Long-term bonds and intermediate-term bonds lost value in 2018 because of rising interest rates implemented by the Federal Reserve Board. Short term bonds actually performed best in the bond sector, posting modest gains in 2018. Security Benefit owns a lot of bonds, including government and commercial securities.

In 2019, so far, the value of intermediate and long-term bonds have recovered somewhat as the Fed has slowed down its projections of raising interest rates and may curtail or even cut interest rates. However GDP grew 3.2% in the first quarter of 2019, blowing away estimates by analysts, raising concerns that the Fed may consider more interest rate hikes.

Security Benefit has $37.4 billion assets under management. Annual revenue was about $4.2 billion in 2018. SE2 has about $90 billion of assets under administration.

When retirees consider how to fund retirement, sometimes they turn to mutual funds or annuities, or a combination of both. Security Benefit is in a great position to offer multiple products in the retirement sector including mutual funds and fixed and variable annuities. Security Benefit's SE2 subsidiary takes care of administration of annuities for a variety of clients and financial firms.

Mike Kiley has been CEO of Security Benefit since September 2011.

David Tangeman contributed to this article.