Sun Life Financial Inc. is looking to add fire power in private credit.
The Canadian insurer is willing to spend $500 million to $1 billion on firms with more than $10 billion in managed assets in mid-market lending, mezzanine financing or other areas of the private credit space. Ideal targets would have operations in North America and Europe. It’s also studying launching its first U.S. private debt fund as soon as this year.
“If we found an acquisition that was in that range of $500 million and even up to a billion, we would say that’s a sweet spot,” said Steve Peacher, president of SLC Management, the $159 billion institutional asset management division of Sun Life. “We think an acquisition like that could move the needle,” he said, adding the company has had “active conversations” on deals.
Investment managers are chasing higher returns in private credit as yields shrink and even turn negative for $13.7 trillion worth of bonds in public markets amid slower global growth and fears of recession in some quarters.
SLC Management’s expansion into private credit follows a rebranding that positions the five-year-old business to be a more meaningful part of the Toronto-based insurer, said Peacher. In addition to private credit, the firm wants to get deeper into infrastructure-equity investing and build out its newly combined BentallGreenOak real estate investment platform.
“We’re starting to operate more as a larger manager with scale,” Peacher, 55, said in an interview at Bloomberg’s Toronto office. “We’re ready to make acquisitions, and we think there are a couple of things we’d like to add.”
SLC Management has about 1,100 institutional clients, including pension funds, insurance companies and sovereign wealth funds. Private fixed income of about $28 billion is currently concentrated in investment-grade debt.
Peacher has no qualms about getting into higher yielding but higher risk private credit, an area of the market that some says is becoming overextended amid a record-breaking $16.6 billion raised for direct lending funds through June 25 this year.
“In a perverse way I want to make sure we’re in these markets even if it means we’re in front of a downturn, because if we pick the right team - and I think in-house in the areas we’re in we have the right teams - we’ll prove to our clients and to non-clients that we’ve done well through that and I think it will really benefit us on the back end,” Peacher said.
Randy Brown, chief investment officer for the insurer, said private credit can be “risk reducing” for the firm. “Our experience is that when a company or a project that we’ve lent to gets in trouble, we’ve got more protections in those deals, more covenants, we know how to negotiate it. If you have trouble, you are more likely to fare well in private credit.”
SLC Management is also considering starting another institutional fund, akin to the three open-ended institutional credit funds it has in Canada.
“If we launch a fund - which we probably will, because it’s worked well in Canada - we’d put a meaningful amount of our own money in and we would seed that, and would probably start to make investments and then we’d start to talk to other investors about it,” Peacher said. “Our aspirations would be large in terms of what it could be.”
Peacher’s also keen on more real estate deals, though not at the scale of its investment in GreenOak Real Estate, which Sun Life combined earlier this month with its Bentall Kennedy real estate and property management firm. The combined company has about $44 billion of assets.
“GreenOak was a transformative acquisition and anything else would be just adding on to that,” Peacher said.
Other ambitions include getting into infrastructure, with an eye to do an acquisition of a firm that manages equity stakes in toll roads, bridges, wind farms, ports and municipal facilities.
“I’d like to find a manager that’s investing in those on behalf of third-party clients,” Peacher said. “We think that’s probably a big growth area.”
Sun Life Financial reports second-quarter earnings after markets close Wednesday.
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