In 2017, Chinh Chu, a former Blackstone senior managing director, joined his business partner Bill Foley in an unusual deal that enriched Chu's former employer and that has earned the ultrawealthy men more than $12 million in fees.

The deal, which gave Blackstone $16.6 billion to manage on behalf of the Iowa insurance company F&G, was emblematic of a new gold rush among private-equity firms seeking to exploit the legally required cash reserves of insurance companies - while delivering huge fees to insiders who can help them gain access.

Now the deal is attracting scrutiny from lawyers and experts in the field. A corporate-governance specialist described the arrangement as an apparent conflict of interest, while a UC Berkeley law professor called the fees a "kickback." A shareholder lawsuit in Delaware state court went further, alleging that a company co-owned by Chu and Foley "knowingly participated in breaches of fiduciary duty."

When Chu stepped away from The Blackstone Group in 2015, he was the private-equity giant's longest-serving dealmaker and had headed up many multibillion-dollar transactions. While he remained a Blackstone senior advisor, he founded CC Capital and sponsored a series of publicly traded blank-check companies, called SPACs, which are essentially pools of investor money that can snap up other operating businesses. He and Foley are considered trailblazers in this area, which has seen explosive growth over the last year.

In 2017, one of those blank-check companies purchased Fidelity & Guaranty Life, a company based in Iowa that sells annuities and life insurance.

Under its new owner, FGL Holdings, F&G agreed to pay a Blackstone subsidiary for managing most of the insurance company's investments. Blackstone, in turn, agreed to send about 15% of the management fee to a company owned by Chu and Foley.

Blackstone highlighted the performance of FGL's stock and the insurance company's investment portfolio after it signed the deal.

"We are incredibly proud of the exceptional outperformance we delivered to Fidelity & Guaranty shareholders," a spokesman said. "We acquired a 20 percent stake in the company in December 2017 at the time we entered into the investment management agreement and were fully aligned every step of the way. We rapidly accelerated the company's growth and significantly improved investment performance, resulting in a 25 percent return for shareholders compared to a 10 percent decline for industry peers over that same period - 3,500 basis points of outperformance."

Through a lawyer, Chu declined to comment on the proposed deal or any other aspect of this story. A spokesperson for multiple Foley-affiliated businesses did not respond to requests for Foley's comment.

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Blackstone is paying millions in fees to its former dealmaker Chinh Chu and his ultrawealthy business partner Bill Foley. An expert calls them a 'kickback.'