Q4 2023 F&G Annuities & Life Inc Earnings Call
Participants
Lisa Foxworthy -Parker; SVP of Investor & External Relations; F&G Annuities & Life, Inc.
Chris Blun; President, CEO & Director; F&G Annuities & Life, Inc.
Wendy JB Young; CFO; F&G Annuities & Life, Inc.
John Barnidge; Analyst; Piper Sandler
John Bass; Analyst; Stephens Inc.
Mark Hughes; Analyst; Truist Securities
Presentation
Operator
Good morning, and welcome to F & G's Fourth Quarter and Full Year 2023 earnings conference call. During today's presentation, all parties will be in a listen only mode following the presentation. The conference will be opened for questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Lisa Fox, where the PartnerRe Senior Vice President, Investor and External Relations. Please go ahead.
Lisa Foxworthy -Parker
Thanks, operator, and welcome, everyone. Joining me today are Chris Blount, Chief Executive Officer and Wendy Young, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks.
Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act which do not guarantee future events or performance. We did not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy. Please refer to our most recent SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.
This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. Non-gaap measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings release, financial supplement and investor presentation all of which are available on the company's website. Today's call is being recorded and will be available for webcast replay at FG. LIFE.com. It will also be available through telephone replay beginning today at 1 P.M. Eastern time through February 29, 2024.
And now I'll turn the call over to our CEO, Chris Blunt.
Chris Blun
Good morning, everyone. Thanks for joining us to discuss our fourth quarter and full year results. Before reviewing the quarter, I'd like to share with you the progress we've made over the last year on December first, 2022, FNF completed its partial spinoff of F and G retaining 85% majority interest and F&G was listed on the New York Stock Exchange. Since that our 1st year as a public company has been a very successful one. I'd like to start by recognizing our employees for their hard work and achievements over the last year. Thank you as well to our many partners and to our customers whose feedback resulted in F and G being ranked number one for highest customer satisfaction among annuity providers in the US by J.D. Power.
And lastly, I'd like to express my appreciation to our parent company, FNF for all of their support throughout the year. In short, 2023 was one of our best years with numerous accomplishments worth highlighting.
First, our retail and pension risk transfer businesses continue to generate sustainable asset growth. We reported record gross sales of $13.2 billion in 2023, which exceeded the top end of the $12 billion to $13 billion range we provided at our Investor Day in October and were up 17% over the prior year, well in line with our goal of growing annual gross sales at a double digit clip. This demonstrates the strength of our multichannel distribution platform that is hitting on all cylinders and generated $10 billion of retail gross sales through our agent bank and broker-dealer channels, $2 billion of pension risk transfer sales and 1 billion of FHLB funding agreements.
We also had record net sales of $9.2 billion in 2023, well above the threshold of $6 billion to $7 billion of annual net sales needed to grow our retained AUM and managed in line with our capital targets. Net sales reflect third-party flow reinsurance, which has increased from 50% to 90% of Midas sales during 2023. As expected.
F&G has successfully expanded from one to three high-quality and established flow reinsurance partners, which provides counterparty diversification and additional capacity. For higher percentage of flow. Reinsurance provides a lower capital requirement on ceded new business while allocating capital to the highest returning retained business, enhances cash flow and generates fee-based earnings, resulting at accretive returns to F&G.
We have profitably grown retained assets under management to a record $49.5 billion at December 31. This is an increase of 14% over the prior year and was driven by net new business flows, stable in-force retention and net debt proceeds. Over the last 12 months, AUM before flow reinsurance was $56.3 billion. Adjusting for the approximately $7 billion of cumulative new business ceded.
A second area to highlight has been the steady and predictable performance of our profitable in-force book. While markets were volatile through 2023, we benefited from the superior foundation that our in-force book provides. Importantly, our book has no legacy liability issues. Our funding agreements, pension risk transfer and immediate annuities are non surrender of all. And our retail fixed annuities are 92% surrender charge protected with 75%. Also subject to market value adjustments. We generated very positive and strong net inflows in 2023, and Wendy will provide further insights to our surrender trends in the current market environment in a few minutes.
Third area of achievement over the last 12 months has been the outstanding performance of our investment portfolio that is well-matched to our clean and stable liability profile. We continually evaluate opportunities for upside, risk-adjusted returns and downside protection in our investment portfolio. In 2023, we enhanced the return while improving the credit quality of our portfolio by executing at our dynamic portfolio allocation, continuing to derisk in light of market dislocations and ongoing macro environment uncertainty. We also successfully negotiated a new fee agreement with our partner Blackstone during 2023, our fixed income yield, excluding alternative investment volatility and variable investment income has expanded to 4.45% in the fourth quarter as compared to 4.37% in the fourth quarter of 2022.
This reflects upside from higher yields on new investments and floating rate assets. At year end 2023, the portfolio is high quality, 95% of fixed maturities being investment grade we hold significantly lower exposure to the commercial real estate and office sectors in our CML portfolio. Credit related impairments remain low, averaging five basis points over the past three years, well, below our pricing assumptions, given the potential for an economic slowdown and lower interest rates in the years ahead, we took some downside risk off the table by hedging approximately $5 billion of our $10 billion floating rate asset portfolio marketing at about 190 basis points of incremental yield beyond what was originally priced in.
This translates to approximately 12 basis points of annual incremental investment margin above our pricing over the next three to five years. We expect to continue to evaluate hedging additional floating rate assets where beneficial and possible. Also, we've refreshed our annual portfolio stress test, which is conservative and assumes no management action. It is once again confirmed that our portfolio is well positioned to withstand a sharp downturn in economy.
A fourth area to highlight in 2023 centers on our balance sheet strength and capital allocation. Given we were well prepared to drive growth and capture the market opportunity in our first year as a public company. F&G is self-funded its growth through our in-force capital generation reinsurance programs and the planned issuance of senior debt. And we have increased our annual common dividend to $105 million, a 5% increase to $0.21 from $0.2 per share and allocated capital to launch our new share repurchase program to take advantage of dislocations.
Our commitment to strong ratings that achieving ratings upgrades over time was recognized through two rating upgrades to A. or excellent by AM Best last month and to a three by Moody's in July. These upgrades provide third party recognition of our progress support further organic growth and give us greater strategic flexibility.
Another vote of confidence came from FNF's $250 million mandatory convertible preferred stock investment in F&G last month to further grow retained assets under management. Given the compelling market opportunity that exists a final area that I'd like to highlight is our own distribution strategy. As we said at our Investor Day, F&G is uniquely positioned to be a capital provider to key distribution partners in January of 2024 F&G acquired a 70% majority ownership stake and a wholesaler of life and annuity products to financial institutions and the broker-dealer community for approximately $270 million. This is our fifth and largest transaction to date and brings our cumulative deployed capital above $500 million.
Own distribution, further strengthens our relationships with key partners as well as providing us with an earnings stream from our ownership stakes, providing for higher margins at a lower marginal cost of capital, which is expected to be accretive to ROE. Overall, 2023 was a big year for us in terms of execution in our first year as a public company for the full year and excluding significant items we delivered a NAV of $539 million, which generated an adjusted ROA of 117 basis points.
And we reported an adjusted ROE in excess of 10%. We continue to execute on the plans we outlined during our Investor Day and are pleased to see investors recognize F&G success realization has more than doubled from $2.4 billion at the time of a partial spin-off in December 2022 approximately $5.8 billion at the end of 2023.
Looking ahead to 2024. We have plenty of momentum to continue to deliver sustainable asset growth from our retail and pension risk transfer growth strategies and ongoing margin expansion from enhanced investment margin opportunities.
Operational scale benefits and fee-based earnings from accretive for reinsurance. We are also well positioned to diversify our earnings given the strong growth of our middle market life insurance business and owned distribution strategies. I'm very proud of our accomplishments and confident that F&G will continue to generate shareholder value through continued execution of our strategic priorities because of the strong culture that we've created which has allowed us to recruit and develop exceptional talent.
Let me now turn the call over to Wendy to provide further details on F & G's full year and fourth quarter financial highlights.
Wendy JB Young
Thanks, Chris. We are pleased with F&G's overall financial performance for the full year, and we continue to maintain strong capitalization and financial flexibility to successfully execute our growth strategy. Adjusted net earnings for the full year 2023 were $335 million or $2.68 per share and included $405 million or $3.24 per share of investment income from alternative investments and $51 million or $0.41 per share of other significant expense items.
Alternative investments. Investment income based on management's long-term expected return of approximately 10% was $558 million, or $4.46 per share. Adjusted net earnings for the full year 2022 were $353 million or $3.7 per share and included $202 million or $1.75 per share of investment income from alternative investments and $99 million or $0.86 per share of other significant income items.
Alternative investments, investment income based on management's long-term expected return of approximately 10% was $419 million, or $3.64 per share. For comparison, adjusting for these significant items in both periods. Adjusted net earnings were $539 million in full year 2023, up 14% from $471 million in full year 2022 and reflect asset growth, product margin expansion and accretive flow reinsurance fees, partially offset by an increase in interest expense due to planned capital market activity and higher operating costs in line with our growth in sales and assets and continued investments in our operating platform.
Adjusted return on assets was 117 basis points in full year 2023 above our 110 basis point forecast and in line with the 118 basis points in the prior year. Excluding significant items, adjusted return on equity, excluding AOCI. was 10.4% in 2023 as compared to approximately 9.6% in 2022.
Next, turning to the results for the quarter. Adjusted net earnings for the fourth quarter of 2023 were $75 million or $0.6 per share and included $110 million or $0.88 per share of investment income from alternative investments and $19 million or $0.15 per share of other significant expense items comprised of $9 million unfavorable actuarial industry assumption update and $10 million onetime fixed asset impairment charge.
Alternative investments, investment income based on management's long-term expected return of approximately 10% was $147 million or $1.18 per share. Adjusted net earnings for the fourth quarter of 2022 were $130 million or $1.4 per share and included $41 million or $0.32 per share of investment income from alternative investments and $58 million or $0.46 per share of significant income for a one-time tax benefit from carryback of capital losses.
Alternative investments, investment income based on management's long-term expected return of approximately 10% was $113 million or $0.9 per share for comparison. Adjusting for these significant items in both periods, adjusted net earnings were $131 million in the fourth quarter 2023 down 9% from $144 million in fourth quarter of 2022 and reflects modest product margin expansion due to inherent timing lag between the precipitous decline in rates and our pricing actions in the fourth quarter of 2023 and accretive flow reinsurance fees, which were more than offset by higher interest expense due to planned capital market activity and higher operating costs in line with our growth in sales and assets and continued investments in our operating platform.
Turning to reported net income on a GAAP basis we reported$299 million net loss in the fourth quarter of 2023 and a $58 million net loss in 2023. For full year. This result is primarily driven by unfavorable mark to market movement, which is excluded from adjusted net earnings. We view the short term mark-to-market movements as point in time, accounting driven and not economic. Given adequate liquidity levers, we didn't expect to sell securities unrealized losses to meet corporate liquidity needs.
To recap, despite some volatility in our earnings in the fourth quarter, our full year performance nonetheless builds on our proven track record over successive years and demonstrates progress toward our targeted value-creation levers of asset growth, margin expansion and enhanced earnings from flow reinsurance.
I'd now like to provide additional perspective on the volatility that we encountered this past year. From a retention perspective, in 2023, we saw predictable outflows from our mega fixed rate annuities, which are aligned to the contractual maturity date set at origination for fixed indexed annuities. We have seen elevated surrenders this year, although offset by higher inflows. This was expected, given the spike in new money rates that the industry hasn't seen in over a decade, which can spur consumer demand to surrender their annuities for new policies under 1035 exchanges.
We generated very strong positive net inflows in 2023, given our record new business volumes, which restart the surrender charge period, further improving liability profile and our in-force annuity account balance continues to steadily grow on both a quarterly and annual basis. As a reminder, for insurance, companies like F&G surrenders typically provide a boost to earnings from the higher surrender charge fees and freed up capital from the policy lapse.
Importantly, our new business and in-force are actively managed to maintain pricing targets over time. That being said, we can expect pockets of market volatility. During the fourth quarter, we saw some margin compression from the interest rate volatility that the annuities industry experienced as rates fell dramatically through the end of the year and consumers rush to lock in rates, creating a dynamic environment for crediting rates and strategy.
We were disciplined and actively actively managed to maintain new business pricing targets. However, there are expected timing lags between precipitous rate movements and our pricing actions for both new business pricing and annual in-force renewal rate setting. This is not the first time we have navigated these issues. And in our experience, we view the resulting quarterly volatility as a blip. Given the rapid movement in rates, there is no change in our economics or expectation for 2024 margins and the long-term outlook for our business remains unchanged. We are positioned to sustain our product margin in a variety of interest rate and economic environments. Our proven track record in recent years demonstrates that we can profitably grow the business and maintain consistent pricing in any rate and spread environment, whether peak or trough.
Next, I'd like to provide an update on our own distribution strategy during 2023, our own distribution stakes increased throughout the year from approximately $20 million to $260 million. Notably, this excludes the majority ownership stake, a life and annuity wholesaler that we closed in January 2024 for approximately $270 million that Chris mentioned earlier.
We are working on enhancements to our financial supplement for the first quarter 2024 to reflect the emerging performance of owned distribution on a GAAP reporting basis, which we expect to provide fee-based earnings and higher returns over time.
Now turning to our balance sheet. We ended the year with a GAAP book value, excluding AOCI of $5.1 billion or $40.42 per share with $126 million common shares outstanding as of December 31.
There is a page in our investor presentation, providing an analysis of book value per share. F&G's debt-to-capitalization ratio, excluding AOCI, was 25.7% as of December 31. This is in line with our long-term target of 25% and excludes the $250 million preferred stock issuance in January 2024.
During 2023, we successfully executed on two senior note issuances, including a $345 million issuance in December and $500 million issuance in January 2023, with proceeds used to support AUM growth and a revolver partial paydown. On February 16th, 2024, we entered into an amended and restated credit agreement, which included an increase to the size of the facility commitments to $750 million fund $665 million and extended the maturity of the facility by two years to November of 2027, thereby enhancing our liquidity profile and financial flexibility.
The outstanding balance is $365 million, which reflects a $150 million paydown in the fourth quarter. In 2023, our interest expense was $97 million or 21 basis points of adjusted ROA as compared to $29 million or 7 basis points of adjusted ROA in 2022, as expected, and in line with our capital markets activity over the last 12 months.
Our annualized interest expense was approximately $120 million or roughly 6.8% blended yield on the $1.8 billion of total debt outstanding. We continue to target a holding company cash and invested assets at two times fixed charge coverage. Our strong capitalization supports both growth and distributable cash. During 2023, F&G returned $119 million of capital to shareholders, including $101 million of common dividends and $18 million of share repurchases.
During the year, we repurchased approximately 870,000 shares at an average cost per share of $21.7. On November 7, we expanded the capacity of the share repurchase program from $25 million to $50 million. The remaining authorization yet to be purchased under the program was $32 million as of December 31, to take advantage of future market dislocation.
On February 15, 2024, we declared a $0.21 per share dividend payable on March 29 to the stockholders of record as of March 15. As Chris mentioned earlier, FNF's recent investment in F&G will accelerate the growth of our retained AUM given the current market opportunity. There's a few points on January 16, 2024 FNS. and S. and G. announced the closing of a $250 million mandatory convertible preferred stock investment issued by F and G annuities and life. Our top holding company to FNF.
F&G intends to use net proceeds from the investment to support growth of its assets under management. A portion of the proceeds will be held to fund the six and seven eight preferred dividend, which is subject to declaration by the Board of Directors. Preferred dividends can be paid in either cash or common shares as dividends are deferred until the mandatory conversion date in 2027, the cumulative payment of dividends will be converted into common shares. On February 15, 2024, we declared a quarterly cash dividend of $0.008976 per share on its preferred stock held by FNF on a pro forma basis, our year end 2023 debt to capitalization ratio, excluding AOCI, would be 24.8% based on current debt outstanding, including the new preferred stock as equity. Going forward, we would expect to conform our earnings presentation to report net earnings available to common shareholders and adjusted net earnings available to common shareholders.
Now moving on to our strong statutory capital position. As expected, we ended the year with a strong and stable capital position, having an estimated company action level risk-based capital or RBC ratio of approximately 440% for our primary operating subsidiary in line with the prior year and providing a buffer well above our 400% target.
Notably, our RBC ratio as of December 31, excludes net proceeds of the $250 million preferred stock investment from FNF in January of 2024. F&G is well positioned to self-fund its continued growth with positive and growing in-force capital generation available debt capacity as our balance sheet delevers with book value growth over time and ample opportunities for future reinsurance programs. We expect to be active in the capital markets in 2024 to fund our growth. As you pay down the revolver and debt maturities, we also expect our stable profitable in-force to generate more than $1 billion in capital.
Let me now turn the call over to Chris to wrap up things.
Chris Blun
Thanks Wendy, we have real momentum across our platform as we enter 2024 that positions us to deliver sustainable asset growth, ongoing margin expansion and improved returns as well as enhanced earnings power as we strive to build upon this past year's many successes.
Importantly, I remain optimistic that we can continue to deliver double digit gross sales growth in 2024, driven by our retail and pension risk transfer growth strategies. The launch of our wireless product earlier this month will be a nice tailwind to our sales growth as we enter a large and fast-growing market. In fact, industry wireless sales are forecasted to be between $44 billion and $48 billion this past year, which is a record level. We believe our product offering is differentiated in the market and will uniquely meet customers' needs.
So it will obviously take some time to gain traction and ramp up. We also expect to deliver ongoing margin expansion from enhanced investment margin opportunities, effectively managing our operating expenses while scaling our organization over time and driving fee-based earnings from accretive flow reinsurance. We have historically spoken of a goal of delivering an adjusted ROA, excluding significant items of 100 basis points, which we have been exceeding. And therefore, reset to 110 basis points as the new baseline. During our Investor Day, we expect to deliver 15 to 30 basis points of core margin expansion and an additional eight to 15 basis points of own distribution margin expansion to increase our baseline adjusted ROA. Excluding significant items over the medium term, we also expect to achieve 300 to 400 basis points of expansion to adjusted ROE, excluding AOCI and significant items over that same time horizon.
Lastly, we continue to diversify and enhance our earnings power as we execute on our own distribution strategy. Our ownership stakes generate a higher margin earnings stream at a lower cost of capital, which we expect to be accretive to our returns over time.
As you can tell, I could not be more excited with the opportunities we have in front of us as we enter 2024.
This concludes our prepared remarks. So let me now turn the call back to our operator for questions.
Question and Answer Session
Operator
Thank you.
(Operator Instructions)
John Barnidge, Piper Sandler
John Barnidge
Good morning. Thanks for the opportunity from the new rail a product. Can you talk about how you view the ramp, maybe total addressable market and needed costs in distribution's positioning for that? Thank you.
Chris Blun
Yes. Happy to morning, John. This is Chris. So yes, we're really really excited about this. So just to put it in perspective, Brian was the fastest growing category in annuities or one of the fastest growing categories is about, I think, $47 billion of wireless sales last year. But as you probably heard me say before, I think it's just scratching the surface. You know, I think this is a product that now it starts to compete very actively with mutual funds, which, as you know, is a trillion our marketplace. So we're really psyched about it. And in fact, we got our first few Riley contracts in this week. So it's really big milestone for us.
We think we're well positioned.
Obviously, it will take time to get approved on various broker dealer shelves, but this is something we're really, really excited about. And frankly, our clients on the distribution side, an individual agents have been asking for. So we're pretty pumped.
John Barnidge
Thank you. On the actuarial charge is there any impact to go forward earnings out of that?
Chris Blun
Wendy wanna take that one.
Wendy JB Young
Thanks, John. And to know, this is this will happen every year around the same where the actuarial tables get updated for the guaranteed withdrawal benefit. So that impacts the MRB. But I don't expect any significant changes to how the MRB changes over time again, that reserves will fluctuate a little bit more than the old reserve regime, but I don't expect that current charge, it will impact it significantly.
John Barnidge
Great. Thank you.
Operator
Next question comes from John Bass with Stephens. Please proceed.
John Bass
Hey, guys. Thanks for taking my questions. Maybe I could get your latest thoughts on capital allocation. I know there are a few moving parts considering the common and now preferred dividend. You also have a lot of authorization remaining on your buyback. And you've also talked to and been active in recent quarters with the owned distribution strategy. So maybe if you guys could just give your view on all that.
Chris Blun
Yes, I'll start and I'm sure Wendy is going to chime in as well. But our number one priority right now is our retained assets under management. I mean, we're in just a fantastic environment for our products. Demand is is quite robust. So I think first priority would be to continue to fund new sales. We're really pleased with the returns we're getting on new business right now. I'm having flow reinsurance in place just allows us to expand gross sales overall and is accretive, so the returns that we're getting. So I would say that as a priority number one for us, obviously, we want to continue to pay a strong and growing common dividend, and we've been able to do that. But I think there will be opportunistically some owned distribution on acquisition opportunities for us. You saw that we just did our largest deal, which brings us to about $500 million of assets under management are invested capital in the owned distribution space. And obviously Wendy can speak to what the annual debt cost is now and the cost of the preferred dividend. But I don't think that's going to dramatically change how we think, Tom, about allocating capital. Fortunately, the stock has been doing well. So we have a buyback authorization, but I think that's really in place.
Should there be some pretty dramatic market disruptions. And I wonder if there's anything you want to add to that may hit on all the key key points.
John Bass
Okay, thank you. And then maybe could you give us some commentary on the reinsurance market as you guys see it, are there any significant changes to the reinsurance economics or maybe the outlook you're anticipating for 2024?
Chris Blun
Wendy why don't you start off, sir.
Wendy JB Young
Thanks. And I don't see any significant changes in outlook while we continue to get approached by potential partners. But as Chris said, we want to grow that retained sales and AUM. So I'm not expecting us to expand too much in 24. But as we head into 25, we could see differences in the market depending on where the interest rates go and go from there.
John Bass
Perfect. Thank you, guys.
Operator
Once again to ask a question that star one at this time. Our next question comes from Hughes with Truist Securities. Please proceed.
Mark Hughes
Yes, thanks. Good morning. I'm wondering why where do you think assets under management will end the year? You've given a lot of guidance on new sales, up double digits, the got $1 billion in capital generation internally, you've got obviously a lot. And in terms of debt capital, I think you mentioned you need $6 billion to 7 billion of net sales to grow assets under management are down.
And any just kind of rough thoughts about where you think given the opportunity here, given your balance sheet where you are now paid AUM will end up?
Chris Blun
Sure. I'll maybe dropped some breadcrumbs and when you could probably maybe a little more specifics around that. But yes, I think the top line environment is fantastic. So you saw this past year we did$13 billion of gross sales. I want to say nine and $9 billion and change in net sales. So obviously, the capital infusion from F&F is helpful. And so we've said publicly, we still think we can continue to grow top line at a healthy double digit pace. We've obviously done better that better than that. And in years past, I think now we can retain a higher level given what's there. I think if you look at our traditional growth in net sales and my guess is that still a pretty decent barometer for what we can add despite the fact that we've doubled the assets in the in the last three years.
So yes, we feel really good about. It has been a lot of hoopla about while surrenders are up, but but inflows are way up. And so I know it sounds odd, but unlike a bank, someone surrendering a very old contract with a small surrender charge, but then bringing in a brand new contract with a brand new surrender charge. Ironically, we're actually improving the risk profile of our liabilities. And generally, we're booking a profit when someone's paying surrender charge. So it's an unusual scenario where, yes, surrenders are up a little bit, but I don't think it changes materially kind of our pattern of net sales and I wonder if there's any more precise you can give there.
Wendy JB Young
Yes. So Mark, if you think about what we said in the past, every billion dollars of retained business cost us about $150 million. So you can do the math on what that $250 million can possibly do to increasing our net retained.
Mark Hughes
Okay. Thank you. For that via all the assumption about the 10% return, is that a is that still a good return assumption?
Chris Blun
Seems like I know there's obviously been a lot of market volatility lately that's been challenging with the better equity markets are more likely to hit that bogey? How should we think about that?
Yes. I mean, this is something we look at on a very regular basis. We have a lot of robust debate on what is the right return expectation. But I would say we're still very comfortable with that number. Obviously, there's a lot sitting in dry powder in terms of opportunities. We've done traditionally comfortably better than that. I do think you're going to see more volatility just because of realizations are down but again, could be a very attractive opportunity going forward, particularly in private equity and probably selectively in real estate, I would think same way. But yes, I don't I don't think anything has happened to cause us to want to move off that long-term number.
Mark Hughes
And then anything you can share in terms of the valuation parameters around the $270 million deal you did in January TE, EBITDA expected earnings contribution. I think you touched on some of that, but you could that as you expand that?
Chris Blun
Yes, yes, sure. So I'll start at the highest level, which is, you know, one, it has to come about at least an equal, if not better return expectation than just running our daily playbook which is using it to retain assets under management. And so yes, when we look at all of these acquisitions, but that one in particular, we're looking at some high 10s. If not north of 20% IRRs are expectations. And these are businesses that are generally not capital intensive, right, if they're heavy cash flow businesses. So that's helpful as well.
And then most importantly, they're not ongoing capital intensive. So there's a hope which I believe that over time we will get rewarded in our multiples for the consistency of those earnings.
The diversification of those earnings. But most importantly, we're making investments in businesses that we know well management teams that we have a lot of confidence in and ones that we think are going to give us an even higher return and we could get by putting it into a new AUM. And then obviously, there is some just long-term strategic benefit. I mean, many of these are relationships that the Company has had for 20 years. And so just further cementing and that relationship to something we think has a lot of strategic benefit.
Mark Hughes
Okay. Appreciate it. Thank you.
Operator
Our next question is a follow up by John Barnidge with Piper Sandler. Please proceed.
John Barnidge
Thank you for the opportunity. You talked about hedging your floating portion of the portfolio and considering to evaluate other options for the remainder of that, what's the line of sight into that? And can you talk about that a little bit more?
The sensitivity to the short end of the curve that remains.
Chris Blun
Yes, 100%. So maybe start by saying what it's not we don't fancy ourselves as rate traders are having deep insights about where interest rates are going. But I think our chief investment officer had a very good insight, which was given where we put a lot of that floating rate exposure on we had an ability to lock in some excess profitability and just take some variability off the table. So we had a pretty substantial position in floating rate assets. We've effectively now cut that by more than half by doing some hedging. As you saw in the commentary, we locked in approximately 190 basis points of outperformance. Obviously, just consistent with how we think about the world, which is, you know, don't be greedy and when you have opportunities to take some risk off the table. So look, at some point, nobody knows exactly when we're going to see rates march back down and this was a choice on our part of let's go for stability there. How much more you do going forward is kind of an open question of what's the ultimate landing spot for your floating rate exposure. But I would expect in the near term, it's going to come down. It's going to continue to come down a bit more.
John Barnidge
Great. Thanks a lot for the opportunity.
Operator
Thank you. And this will conclude our question and answer session. Thank you for attending today's presentation and the conference call has concluded. You may now disconnect your lines.
