F&G Annuities & Life - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was mixed: adjusted EPS of $0.72 missed S&P Global consensus ($0.96) on lower alternative investment income and spread pressure, while AUM reached new records; GAAP EPS was a loss of $(0.20) driven by mark‑to‑market items. EPS miss and a large revenue miss vs consensus reflect insurance accounting volatility rather than core growth deceleration; management emphasized headwinds are temporary and expects improvement through 2025. Estimates marked with * from S&P Global.
• Sales mix was deliberately tilted away from MYGA toward higher‑return FIA/PRT; gross sales fell 17% YoY to $2.9B, but ex‑MYGA rose 5% YoY; record AUM before flow reinsurance reached $67.4B (+16% YoY).
• Margins compressed: adjusted ROA was 0.68% (LTM 1.00% vs 1.06% in Q4), driven by excess cash from CLO prepayments amid lower cash yields, lower surrender income, timing of in‑force repricing, weaker owned distribution margin, and higher interest expense; management expects these to normalize in coming quarters.
• Capital actions strengthened flexibility: $375M junior subs issued (Jan), $300M senior notes redeemed (Feb), $269M common equity raised (Mar); debt/capital ex‑AOCI at 26.7% (target ~25%) and RBC targeted ≥400% maintained.
• Dividend maintained at $0.22/share for Q2 2025; equity raise timing drew investor questions and was cited as weighing on the stock, but deployment is targeted to profitable growth opportunities.

What Went Well and What Went Wrong

• What Went Well

  • Record scale: AUM before flow reinsurance hit $67.4B (+16% YoY); retained AUM $54.5B (+9% YoY) on strong indexed annuity momentum.
  • Disciplined mix shift: Ex‑MYGA gross sales +5% YoY; FIA/RILA sales were $1.46B, in line YoY; funding agreements grew sharply ($525M vs $105M).
  • Credit quality robust: 96% IG fixed maturities, low impairments (2 bps in Q1; 6 bps 5‑yr avg); CLO portfolio seasoned and diversified.
  • Management tone/confidence: “We remain confident that we will deliver on our medium‑term Investor Day targets” (CEO).

• What Went Wrong

  • Margin compression: Adjusted ROA fell to 0.68% as spreads were pressured by excess cash from CLO prepayments amid lower cash rates, slower surrenders, weaker owned distribution margin (one‑time growth investment), and timing of in‑force repricing under rate volatility.
  • Alternative investments underperformed: Alts were ~$63M below long‑term expectations in Q1, weighing on earnings.
  • EPS and revenue below consensus: Q1 adjusted EPS $0.72 vs $0.96*; total GAAP revenue $908M vs $1.473B* estimates (insurance revenue volatility) [GetEstimates]. Values marked * from S&P Global.

Transcript

Operator (participant)

Good morning and welcome to F&G's first quarter 2025 earnings call. During today's presentation, all callers will be placed in a listen-only mode. Following management's prepared remarks, the conference will be open for questions with instructions to follow at that time. I'd like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President of Investor and External Relations. Thank you. You may begin.

Lisa Foxworthy-Parker (SVP of Investor and External Relations)

Thanks, Operator, and welcome, everyone. I'm joined today by Chris Blunt, Chief Executive Officer, and Conor Murphy, Chief Financial Officer. Also, Wendy Young, Chief Liability Officer, will be available for Q&A. Before we get started, I wanted to note that we have recast prior-period financial results during the quarter. We have removed CLO redemption and bond prepay income from our significant items and have updated definitions for the cost of funds and flow reinsurance fee income within our A&E Management View income statement. Importantly, historical reported net earnings and adjusted net earnings, or A&E, have not changed. The recast financial results are available in our quarterly financial supplement and earnings release, as well as our spring 2025 investor presentation. Also, starting this quarter, we are presenting our financial results on an as-reported basis throughout our earnings materials.

Therefore, these results, including A&E, ROA, and ROE, are no longer presented on an excluding significant items basis. On page six of our quarterly financial supplement, you can find a summary of the impacts to A&E from significant items and investment income from alternative investments. 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 do 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 quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP measures, which management believes are relevant in assessing the financial performance of the business.

Non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules within our earnings materials available on the company's investor website. Please note that today's call is being recorded and will be available for webcast replay. With that, I'll hand the call over to Chris Blunt.

Chris Blunt (CEO)

Good morning, everyone, and thanks for joining our call. Our first quarter results reflect near-term headwinds from the volatility of the overall environment, the majority of which we believe to be temporary in nature. From a top-line perspective, we continue to manage sales and enforce profitability to optimize our return on capital. This resulted in a reduction in MIGA sales in the first quarter, with continued strong fixed index annuity and pension risk transfer sales, which are our highest returning businesses. From a bottom-line perspective, while we gave up some spread during the first quarter, we believe much of that was short-term in nature and not indicative of any longer-term challenge to our business model.

The four main drivers were excess cash due to CLO prepayments, coupled with a drop in cash rates, lower surrender income, as there was a noticeable pause in refinancing of old policies by agents, a relatively weaker quarter for our own distribution business, largely driven by the same slowdown, as well as some one-time growth investments by one of our distribution companies, and simply the timing effect of enforced pricing changes, which can occur in periods where there are precipitous increases or decreases in interest rates. As things stand today, we would expect each of these drivers to improve throughout 2025, and we remain committed to achieving our 2023 Investor Day targets. Conor will provide more details on our sales and financial results later in the call. Overall, our enforced book of business and the investment portfolio are performing well, and as expected in the current environment.

For the enforced book, we have a young fixed annuity block that is surrender charge protected. We lock in spread at the time of sale and also have the flexibility to reprice a large majority of our liabilities to economics on an annual basis. We maintain pricing discipline over the life cycle of the product, and during periods of market volatility, like we're seeing now, we take a measured approach to renewal rates, balancing pricing consistency with distribution. Next, turning to the investment portfolio in more detail, the portfolio is well matched to our liability profile and diversified across asset types. We are now in the seventh year of our seasoned partnership with Blackstone and have a fully developed public and private asset toolkit. This enables us to be competitive without taking on additional credit risk.

If spreads in one asset class are shrinking, we have many others to choose from. The retained portfolio is high quality, with 96% of fixed maturities being investment grade. We continue to invest in defensive sectors, having an up in quality bias. Our real estate exposure is high quality and moderate leverage, with diversified exposure across property types. Notably, we hold very little office exposure at 1.6% of our total portfolio. Our portfolio credit quality has improved since 2020 through implementation of various portfolio repositioning programs. We have had excellent credit performance in the portfolio. Credit-related impairments have remained low and stable, averaging six basis points over the last five years and two basis points in the first quarter, well below pricing. The portfolio is conservatively positioned to outperform under various economic scenarios while maintaining the ability to withstand a downturn.

During the fourth quarter, we have modestly increased our hedge ratio to 75% of our floating rate assets, which are now only 5% of our total portfolio net of hedging. Our fixed income yield was 4.53% in the first quarter, a decrease of three basis points from the first quarter of 2024. This reflects the benefit of higher yields on new investments, offset by the runoff of higher-yielding enforced assets. On a sequential basis, our fixed income yield decreased six basis points from the fourth quarter, primarily due to the runoff of higher-yielding, shorter-duration enforced assets that generated excess cash. We continually look for opportunities to add yield over time by taking advantage of the market dislocations and continuing to work with Blackstone to source new asset categories. Next, I'd like to provide a few brief topical updates on tariff exposure, CLOs, and alternative limited partnerships.

During the first quarter, we conducted a comprehensive analysis across the portfolio to assess direct tariff exposure and broader economic implications. Our analysis confirmed that the portfolio is resilient and largely insulated from tariff-related impacts due to our focus on credit and the robust structural protections that we have in place. Turning to our CLO portfolio, we have a diversified portfolio that represents $3.7 billion, or 7% of the total retained portfolio. It's a well-seasoned portfolio that is approximately 89% investment grade and is outperformed, with most purchases dating prior to 2021, and many have already prepaid since spreads have narrowed, which is reflected in our net investment income as prepay income. Our CLOs are backed by a highly diversified pool of loans with ample power subordination. Our portfolio uses 85 CLO managers and invests in close to 2,000 companies operating within 30-plus industries.

By industries, CLOs skew toward high tech, healthcare, and pharma, and financial industries with low exposure to energy and retail. Historic studies have shown that CLOs have had superior performance compared to corporates, and we benefit from Blackstone's capabilities and expertise, which allows our CLO portfolio to be underwritten at the underlying loan level. Within our overall alternative investments, I wanted to spend a few minutes on limited partnerships. We held 6% of the portfolio in LPs as of March 31. As a reminder, our target allocation is 5%, and we expect that our allocation will move between a range of 5%-7%, given that the pace of capital calls and distributions can vary. The LP portfolio is very well diversified from a sector, vintage, and funds perspective, with 37 different funds.

By asset class, our LP portfolio is 57% in private equity, 27% in real estate, and 16% in credit for the first quarter. By sector, the real estate funds skew towards industrial, residential, and REITs, while the private equity funds are weighted toward financials, information technology, and industrials. The bottom line is that we do not have a lot of direct tariff exposure. For our private equity holdings, we remain confident that there's real value in these underlying companies despite a delay in realizations. Our LP portfolio is a relatively young book. Since the inception of our LP portfolio build-out with Blackstone in 2018, we have seen a return of over half of the capital invested. As an asset class, we like LPs because they provide our portfolio with a long-duration asset at a very attractive return on capital.

Turning to our growth strategies, beyond AUM growth, we continue to diversify our earnings between spread-based and fee-based sources, including our own distribution stakes. In aggregate, we have invested $680 million in owned distribution companies through two majority stakes taken in 2024 and two minority stakes purchased in 2023. These stakes are held at the holding company level under our peak altitude entity and our strategic long-standing relationships. Our holdings are diversified by product and market and reflect growing businesses with strong leadership. Overall, the owned distribution portfolio is performing well and creating value, with double-digit annual growth of EBITDA expected over the medium term. Looking ahead to the remainder of 2025, we will continue to execute on our strategy while prioritizing pricing discipline and allocating capital to the highest return opportunities.

Let me now turn the call over to Conor to provide further details on F&G's first quarter sales and financial highlights.

Conor Murphy (President and CFO)

Thank you, Chris. This morning, I'll focus my comments on assets under management and sales, updates to our financial reporting, adjusted net earnings and returns, and our balance sheet and capital position. Starting with AUM and sales, F&G reported record AUM before flow reinsurance of $67.4 billion as of March 31, despite the near-term pressures, including retained assets under management of $54.5 billion. Compared to the first quarter of 2024, this reflects 16% and 9% increases respectively, driven by net new business flows. F&G's gross sales were $2.9 billion, 17% lower than the first quarter of 2024, primarily due to lower MIGA sales. As we continue to prioritize allocating capital to the highest returning business, specifically indexed annuity sales and pension risk transfer sales, we intentionally scaled back MIGA. Excluding MIGA, gross sales increased 5% over the first quarter of 2024.

Indexed annuity sales were strong at $1.5 billion in the first quarter, in line with the first quarter of 2024. FIA continues to be our largest contributor to indexed annuity sales, although our RILA product is gaining traction and building momentum. We took a measured approach in reflecting rate volatility in our pricing during the early part of 2025, but have subsequently seen increasing levels of submitted annuity business in March and April. Indexed universal life sales were strong at $43 million in the first quarter, in line with the first quarter of 2024. Pension risk transfer, our PRT sales, are off to a solid start with $311 million in the first quarter, while down from $584 million in the first quarter of 2024, which was a record first quarter. Our full-year PRT sales are typically more weighted to the back half of the year.

Funding agreements were $525 million in the first quarter, as compared to $105 million in the first quarter of 2024. We view funding agreement sales as opportunistic, and volumes vary quarter to quarter depending on market conditions. MIGA sales were $562 million in the first quarter, as compared to $1.3 billion in the first quarter of 2024. F&G has the flexibility to optimize its level of flow reinsurance in line with capital targets by dynamically adjusting MIGA volumes up and down as market economics change. Net sales retained were $2.2 billion, compared to $2.3 billion in the first quarter of 2024. Next, turning to our financial reporting updates, as Lisa mentioned at the top of the call, there were two retrospective management reporting changes in the quarter.

First, we have refined the classification of acquisition costs between the flow reinsurance fee income and cost of fund line items in our adjusted net earnings management view income statement to better align amortization and expenses. Second, significant income and expense items now exclude CLO redemptions and bond prepay income, as we consider these indicative of the economic performance of our business. Applicable periods have been recast to conform to these changes. Importantly, there was no impact to GAAP earnings or reported A&E. Please refer to our quarterly financial supplement for further details. Also, beginning this quarter, we are presenting our financial results on an as-reported basis throughout our earnings materials. Therefore, these results, including A&E, ROA, and ROE, are no longer presented on an excluding significant items basis.

Turning to earnings, the first quarter reported adjusted net earnings were $91 million, or $0.72 per share, as compared to $108 million, or $0.86 per share in the first quarter of 2024. First quarter of 2025 A&E reflects a $16 million benefit from a reinsurance true-up. For the quarter, investment income from alternative investments was $63 million below management's long-term expected return. First quarter of 2024 A&E included a $2 million benefit from other income items. For the prior year quarter, investment income from alternative investments was $52 million below management's long-term expected return. Compared to the first quarter of 2024, adjusted net earnings decreased by $17 million. This was primarily driven by margin compression due to near-term headwinds, as Chris outlined, lower owned distribution margin, and higher interest expense in line with our capital market activity.

These were partially offset by asset growth, higher flow reinsurance fee income, and disciplined expense management. Notably, we are benefiting from increased scale, as our ratio of operating expenses to AUM before flow reinsurance decreased to 58 basis points in the quarter from 63 basis points a year ago. As Chris mentioned, while we gave up some spread during the first quarter, we believe much of that was short-term in nature and not indicative of any longer-term challenge to our business model. First quarter reported adjusted return on assets was 68 basis points. ROA was pressured from near-term headwinds, as well as the short-term fluctuations in investment income from alternative investments. On a last 12-month basis, adjusted ROA of 100 basis points decreased 6 basis points from 106 basis points in the fourth quarter of 2024.

Reported adjusted return on equity, excluding AOCI, was 9.7%, up 2.3% over the first quarter of 2024. Now, turning to our strong and growing balance sheet, we continue to maintain RBC at or above 400%, remain committed to our long-term target of approximately 25% debt to capitalization, excluding AOCI, and expect that our balance sheet will naturally delever as shareholders' equity, excluding AOCI, grows. F&G has successfully completed the following recent capital markets activity as expected. In January, F&G issued $375 million of junior subordinated notes, with the net proceeds to be used for general corporate purposes, including the repayment of debt. In February, F&G fully redeemed its $300 million of outstanding senior notes due in May of 2025. On a pro forma basis, our annualized interest expense is approximately $165 million, or roughly a 7% blended yield on $2.3 billion of total debt outstanding.

We target holding company cash and invested assets at two times interest coverage. In March, F&G completed the public offering of 8 million shares of Common Stock, with net proceeds of approximately $269 million to be used for general corporate purposes, including the support of organic growth opportunities. Fidelity National Financial, F&G's major stockholder, purchased 4.5 million shares and held an ownership stake in F&G of approximately 82% as of March 31. We ended the quarter with a GAAP book value attributable to common shareholders, excluding AOCI, of $5.8 billion, or $43.31 per share at March 31. I share Chris's enthusiasm for F&G's future opportunities to deliver long-term shareholder value.

As we navigate the near-term headwinds and macro uncertainty, we are focused on managing sales and enforced profitability to optimize our return on capital, diversifying our spread-based and fee-based earnings through middle market life insurance, flow reinsurance, and owned distribution, and continuing our progress toward the targets set out at our 2023 Investor Day, which will continue to drive expansion of our return on equity. This concludes our prepared remarks, and let me now turn the call back to our operator for questions.

Operator (participant)

Great, thank you. At this time, we will be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your cell phone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. First question here is from John Barnidge from Piper Sandler. Please go ahead.

John Barnidge (Managing Director and Senior Research Analyst)

Good morning. Thank you for the opportunity. My first question is around sales and distribution. With the RILA product now entering the second year, can you maybe talk about how you think about the growth opportunity there, both from a sales perspective but also from a distribution one too? Thank you.

Chris Blunt (CEO)

Yeah, happy to. Good morning, John. A couple of things. One, just a comment on sales during the quarter. As I think you saw, we had a decline in MIGA, and that was just simply a function of the volatility that was going on in the markets, which caused challenges not just for us, but for some of our reinsurance partners. That has rebounded nicely. In fact, we've done more MIGA business in the month of April than we did the entire first quarter. I think the sales engine is in great shape. Specifically to RILA, yeah, we're still super excited about that. Given that we were not a player in registered products before, it has admittedly taken longer to get onto platforms, but that is happening. We're adding broker-dealers pretty consistently now.

Yeah, as we've said before, that's a product that in the medium term, we think can actually be in the billions for us. We're pretty excited about RILA.

John Barnidge (Managing Director and Senior Research Analyst)

Thank you very much. Maybe my follow-up question. Are you able to parse out the impact on owned distribution from lower industry volume versus the owned distribution partner that may be invested in the platform?

Chris Blunt (CEO)

Yeah, boy, that's a good question. I don't know that I have that at my fingertips, but I think they were fairly balanced. When it comes to owned distribution, I will say similarly, we've seen a really nice rebound there in April. I don't know if it's exactly half, we could get back to you, but I would guess it's probably about half of it was an investment that we supported that had a pretty quick payback by one of our partners. The rest was just a, which I think the entire industry saw, a slowdown in 1035 activity. Again, that has rebounded in April and May, which is why when we characterize some of this as temporary headwinds, we truly think they're temporary.

John Barnidge (Managing Director and Senior Research Analyst)

Thanks for the answers.

Operator (participant)

Next question here is from Wes Carmichael from Autonomous Research. Please go ahead.

Wes Carmichael (Senior Analyst)

Hey, good morning. First question, just on the decision to raise common equity in the quarter, we received a lot of questions from investors at the time, and I think it came as maybe a bit of a surprise and weighed on the stock. Can you maybe just help us with your thoughts on deployment and timing, and are you maybe wanting to hold any of that capital back given some of the recent volatility that we've seen?

Chris Blunt (CEO)

Yeah, it's a great question. I think in terms of deployment, as I gave you the MIGA stats, and so I don't think our plans have changed. I think it is to deploy it thoughtfully into new business. As you know, our business model is pretty sound. We like it. We're pretty disciplined about how we price new business. 57% of our reserves are in FIAs. We go through a similar annual process when policies come up for renewal. I think the most important thing is the business model is still intact, and we see lots of opportunities there. Yeah, I don't think from an environment perspective, we were cautious when it came to MIGA in the first quarter of wanting to make sure we understood the lay of the land with rates and with spreads.

We did have some cash buildup, but we are now deploying that. I think our patience has been rewarded. I think we are deploying it now at spreads, frankly, better than what we priced for. Again, we are not market timers, but that is probably the only area where some caution came in to just try to get the lay of the land there.

Conor Murphy (President and CFO)

Conor, I know you know this, but just a reminder that the timing of the capital raise, it was right at the end of the first quarter. There was not time to do anything noteworthy with it until Q2.

Wes Carmichael (Senior Analyst)

Yep, understood. Thank you. I guess just second one, just looking at the cost of funds at 318 basis points, that was up, I think, sequentially 22 basis points and I guess more of a significant jump than we've seen in prior quarters. Chris, how much of that do you think is a function of competition in the market? Was there something going on in the first quarter, and would you expect that to get better with some of the enforced pricing actions you're contemplating?

Chris Blunt (CEO)

Yeah, and again, I'll let Conor kind of disaggregate for you, Wes, because it's a good question. I would just keep in mind that, again, the base model, nothing's really changed in terms of our new business pricing target. We're quite disciplined on that, and we're quite disciplined at maintaining our spreads on our enforce, balancing that, obviously, of, excuse me, wanting to do the right thing for policyholders and be fair to our distribution partners. None of that has changed. I think some of what happened is you had a little bit less surrender income, but that has picked up again. Some of this is just there is a lag effect as you're repricing your enforce book relative to some of those changes. I don't know, Conor, if you want to add to that.

Conor Murphy (President and CFO)

Yeah, maybe to underscore some of it, if you break down, maybe I'll talk a little more broadly. I'll talk sequentially from a product margin point of view, so both from an income and the cost of funds perspective. The drivers, maybe in terms of proportional size order, the alt returns would be the first. Obviously, if you're normalizing for that, then the next most impactful was the lower surrenders, which is coming through that cost of crediting line. The third element, which Chris outlined in his opening remarks, is just the lower cash yield impact in the sequential quarter as well. Hopefully that helps you.

Chris Blunt (CEO)

Wes, if I could just squeeze in one more comment here. In terms of progress toward Investor Day, we still feel really good, right, about that for a couple of reasons. One, the expense piece we control, and you heard from Conor, we're driving that operating expense ratio down, and we will continue to do so. That is 100% in our control. Flow reinsurance income was down a bit in the quarter, but that is because the reinsurers are struggling with the same thing we were of how do you price in an environment when rates are bouncing all around and you're not sure what the spread outlook is. That has already normalized, so that is a positive. We covered owned distribution. Those are three big drivers for us, right, in terms of our Investor Day targets. We talked about the base spread model. Again, that has not changed.

We do not see anything right now that says, "Oh, we are seeing outsized moves that we cannot accommodate within our normal mechanisms." Hence the comment of still feeling like we are on track.

Wes Carmichael (Senior Analyst)

Yep, got it. Thank you, Chris.

Operator (participant)

As a reminder, if you'd like to ask a question, it is star 1. Next question is from Mark Hughes from Jefferies. Please go ahead.

Yeah, thank you. I think you've touched on this, Chris, but for the MIGAs bouncing back in April, is that a market phenomenon, or is that you got comfortable with the environment and kind of leaned into that market?

Chris Blunt (CEO)

Yeah, it's hard to tell. We don't really get a sense of how other folks are doing, and pretty unusual for us to give a monthly number, but it was just to punctuate the point of there were some unusual things happening of trying to price MIGA business. We pride ourselves on being disciplined. Yeah, I would say it was very much in our camp. Once we, again, had clarity on a little bit of rates calming down a bit, spreads widening a bit, reinsurers getting comfortable that they could earn a good return, it sort of all came together. In this type of an environment, MIGA is going to be a bit lumpier. We like the business. It's quite profitable for us. Again, fixed index annuities, RILA, in a perfect world, we would grow that every single quarter.

PRT, we want to continue to grow that business. MIGA is going to be a bit more volatile because, as you can imagine, we want to be good allocators of you and your clients' capital. We are going to see a little more MIGA volatility. Last but not least, FABNs are just purely opportunistic. If the spreads make sense and we have capital and it makes the list of good capital return, we will write it, and if not, we will not. Hopefully that helps.

Conor Murphy (President and CFO)

Let me add just one thing too, because I think this is important. The MIGA activity was not to the detriment of other retail opportunities that we enjoy too around either indexed universal life or the fixed indexed annuity businesses. They had good April's as well. It is not like we did MIGA and did not do the others.

Chris Blunt (CEO)

Yeah, great point.

Understood. Chris, in your experience, is this reminiscent of other times in the past where you saw this sort of similar volatility? Any kind of takeaways? I know every time is different, but based on your experience, any conclusions you draw about this?

Yeah, it's a really great question. I would point folks back to COVID. When COVID hit, I don't know if folks remember, but Libor just collapsed. It was almost overnight. I think in my mind, I remember like 140 basis points. We had a fair amount in floaters. We've since hedged a lot of that out. I think our net floating rate exposure is only 5%. Back then, I want to say it was like 15%. That was significant. Again, we began the repricing exercise within our enforce. As I recall, even with a really extreme move like that, within a year, we had sort of recaptured and regained our original spread target. That proves the business model works. This isn't our first rodeo. We've been doing this a long time now.

I think the business model has proven to be quite resilient, and I don't see anything that's changed that despite the volatility we have now.

The investment that you called out for one of the owned distribution companies, what was the nature of that investment? Is that just kind of one quarter and done, or does that have some carryover?

Yeah, it was really quite simple. It was an opportunity for one of our IMOs to acquire a stake in a smaller IMO that they had a relationship with. It had a very quick, very attractive payback. As board members, we looked at it and said, "Frankly, we'd rather have you do that than get a dividend in the quarter." It was really that simple. I do not think that's a normal something that we're going to see every single quarter. It was a bit more opportunistic. Again, without being able to go into specific details, it felt like a good use of capital.

Yeah. Are they going to be in position to start paying the dividends again, or?

Yeah, that's our expectation.

Yeah. Okay. Thank you very much.

Operator (participant)

Next question is from John Barnidge from Piper Sandler. Please go ahead.

John Barnidge (Managing Director and Senior Research Analyst)

Thanks for the opportunity to do a follow-up. With market volatility, is there anything to think about as far as RBC sensitivity to equity market volatility?

Conor Murphy (President and CFO)

Hey, John, it's Conor. Not this question. I mean, we're still managing. Obviously, we do this. We talk about it publicly on an annual basis. I think the simplest answer to your question is nothing's changing in terms of our RBC expectations, targets being above 400 at the end of the year, etc.

John Barnidge (Managing Director and Senior Research Analyst)

Okay. Thanks a lot. Appreciate it.

Operator (participant)

Next question is from Wes Carmichael from Autonomous Research. Please go ahead.

Wes Carmichael (Senior Analyst)

Hey, thanks for taking the follow-up. I just wanted to touch on the alt portfolio. I think this includes the direct lending and non-direct lending securitizations. Would you be able to just break out the performance of that bucket a little bit in the quarter? I know you called out, Conor, the $63 million below expectations. Any way to think about how the return came in with traditional alts versus the securitizations and maybe how you're thinking about that on a go-forward basis?

Conor Murphy (President and CFO)

I'll do a little, and others can maybe add as well. Yeah, I mean, you've kind of got a blended return, which I think you published within that. You're right. There are a few categories. What I would describe as maybe the direct lending portfolio, the more homogenous, more debt-like securities were at the higher end of that, the closer to the expectation. It was really the LP portfolio that probably came in lower, kind of think like mid-single digits, which is impactful in terms of the overall yield. I think that's what you're getting at. I would put whole loans kind of in the middle, maybe a little maybe on the lower end as well. If you're trying to get sort of the relative comparison performance of the three, the direct lending book would have been at the higher.

It would have been the outperformer of the three of them.

Chris Blunt (CEO)

Yeah. Wes, it's an obvious point, but it's kind of the one thing we can't control is the pace of realizations in private equity funds. People have a tendency sometimes to say alts, and it's too broad a definition. I appreciate your refining it and going a bit deeper because people sometimes think that our entire alt portfolio is sitting in PE funds, which it's not.

Wes Carmichael (Senior Analyst)

Yeah. No, thanks. That's helpful. I guess just going back to the surrenders, if we kind of remain in this environment, are you expecting surrender activity to pick back up relative to the first quarter, or should we kind of maybe expect that to be a little bit more of a drag on cost of funds going forward?

Conor Murphy (President and CFO)

It's an interesting question. What I would say is this way, that the surrender activity would have peaked third quarter of last year, but it was pretty elevated second quarter, third quarter, fourth quarter. What we saw in Q1 is lower than those three quarters. What we saw in April was almost the same as Q1. The mathematical answer to your question at this stage is we're projecting something pretty similar, Q2 to Q1, just based on April results. That's probably pretty close to where we were a year ago as well.

Wes Carmichael (Senior Analyst)

Yep. Thanks.

Chris Blunt (CEO)

I do not know if this is helpful at all, Wes, but when we look at our book and the policies that we wrote back when rates were really low, sort of red, orange, green, what are the ones that are perhaps the most vulnerable to being replaced? There is still a fair amount of that that has not been worked through. I think surrenders are going to be just hard to predict. It is not like, "Oh, that is over." I think if rates stay where they are, there are still quite a few policies for us and other companies that get replaced. We have talked about this before. Ironically, you end up in a better place because you have even stickier liabilities that are less likely to get pulled out or surrendered early on you going forward. It does create some of this near-term noise.

Wes Carmichael (Senior Analyst)

Thanks, Chris.

Operator (participant)

This concludes the question and answer session. I'd like to turn the floor back to Chris Blunt for any closing comments.

Chris Blunt (CEO)

Great. Thank you. Just want to conclude by saying I'm confident in our underlying operating performance and the long-term stability of our business despite the near-term headwinds. F&G's business is resilient and well-positioned for the many opportunities ahead through the strength and flexibility that's provided by our multi-channel distribution model, our disciplined pricing and underwriting of our spread-based products, and our ability to generate fee-based earnings. Thank you for joining us. We appreciate your interest in F&G and look forward to updating you on our second quarter earnings call.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.

Lisa Foxworthy-Parker (SVP of Investor and External Relations)

Goodbye.