Sun Life Financial [TSX:SLF], the Toronto-based insurer, will continue to look for targets in alternative asset management, especially funds that invest in private credit, real estate debt and infrastructure equity, an executive said.
Sun Life this week announced a deal to acquire a 56% stake of New York-based investment firm GreenOak Real Estate for USD 146m, with an option to acquire the remaining shares in the next seven years. GreenOak will be merged into Bentall Kennedy Group, which Sun Life acquired in 2015 for CAD 560m.
The deal came together through internal conversations between the two companies, said the executive, Steve Peacher, president of Sun Life Investment Management. Sun Life was attracted to GreenOak’s expertise in value-add real estate investing and broad coverage across US, UK and Europe, as well as Japan and Korea, Peacher said.
Sun Life Investment Management works to offer institutional investors a similar investment strategy to the one used by Sun Life Financial for its own general account, Peacher said. Bentall Kennedy manages about USD 19bn in assets for Sun Life, and another USD 18bn for third-party clients. GreenOak brings about USD 11bn in AUM, so the combined entity has around USD 48bn in total AUM, Peacher said.
The GreenOak deal is the fourth acquisition since Sun Life Investment Management was formed in 2014, Peacher said. It acquired two fixed asset managers in 2015, New York-based Ryan Labs Asset Management, which focuses on corporate income and liability driven investing, and Seattle-based Prime Advisors, which focuses on fixed income portfolio for insurance clients.
A clear trend is that institutional investors are moving out of equity and into fixed income or alternative investments to de-risk their portfolio, Peacher said.
Since its fixed income capability is well-established, Sun Life would look for targets that invest in alternative asset classes, the executive said. To meet their high return hurdle, institutional investors are more and more willing to give up some liquidity to participate in alternative asset classes, he said.
One acquisition area for Sun Life is direct middle market lending, as it is one of the biggest segments of the private credit market, Peacher said. Considerable investment has flowed into this area and it is getting overheated, but Sun Life has participated in the spaces and likes this line for its capability of generating returns in the long run, he said.
Smaller niche areas with good returns are also of interest for deals, such as asset managers that specialize in life science and asset-based debt financing, Peacher said.
In real estate debt, Sun Life would like targets that have strategies that are complementary to its own. For example, Sun Life’s own lending strategy in real estate has been relatively conservative, but some investment firms offer aggressive products, such as transactional funding, short-term loans for redeveloping a building, or mezzanine loans, Peacher said. He said it could be useful for Sun Life’s clients to have access to these types of funds so it would consider buying a firm that offers them.
Using its own balance sheet, Sun Life is an active lender for infrastructure projects. It is interested in acquiring managers that invest equity in infrastructure, because the higher yield and longer duration of such a strategy is a good fit for institutional investors who are willing to take more risk and expect higher returns, Peacher said.
On the GreenOak deal, Sun Life worked with Berkshire Global Advisors as financial advisor and Weil, Gotshal & Manges as legal advisor, according to the press release. The insurer overall manages CAD 983bn in assets and has a CAD 26bn market cap.
by Yizhu Wang