Sun Life’s $116 Billion Alternatives Arm Aims to Lift Assets 55%

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Sun Life Financial Inc. has spent years building its SLC Management alternative-asset management arm into a C$145 billion ($116 billion) business through acquisitions.

Now the insurer is seeking to increase SLC’s size an additional 55% to C$225 billion in third-party assets under management by 2025, largely with the pieces it already has in place.

SLC Management President Steve Peacher said he’ll rely on organic growth and new products from existing teams, which span fixed income, real estate, infrastructure and alternative credit. Despite a recent uptick in inflation expectations and long-term interest rates, Peacher sees a lower-for-longer rate environment persisting, continuing to fuel alternatives demand from insurance, pension fund, endowment and foundation clients.

“Institutions are allocating more to alternatives because equity valuations are high and rates are really low, and these are asset classes have delivered,” Peacher said Thursday in an interview, following the announcement of the 2025 assets target and a morning of presentations to investors. “We’ve got the wind at our back with our existing products and then new variations of our existing capabilities.”

Acquisitions aren’t off the table, but they likely won’t be at the scale of those SLC undertook to put in place the building blocks of its investment platform. Peacher has called the purchase of alternative credit manager Crescent Capital, which was announced last year and closed in early January, the “final major piece of the puzzle” for SLC and stood by that assessment on Thursday. The firm paid $276 million for Crescent up front and could pay as much as $62 million more, depending on performance.

Crescent is evaluating an “incremental” acquisition that would give it a capability in another niche of alternative credit, Peacher said. Acquisitions that bring its current businesses into new market segments or geographies would be most likely, but he wouldn’t rule out deals to significantly increase the size of businesses, particularly in Asia. He declined to provide more details on Crescent’s potential acquisition.

Most of the growth targeted in the 2025 goal will come from existing businesses. Peacher said the firm’s BentallGreenOak real estate arm has been working with a pension fund client on a new sub-strategy that could result in a C$900 million fund.

‘Base of Expertise’

“That’s a new strategy but off the same base of expertise,” Peacher said. “That new product will be something that their existing teams are managing, but it’s a new niche that they’re able able to raise money around.”

Current businesses plan to expand geographically. Peacher said the InfraRed infrastructure business, which the company agreed to buy for about $390 million in 2019, is working to grow in the U.S., moving beyond its home base of Europe.

SLC, which also manages about C$158 billion in assets for Sun Life’s general account, will continue to benefit from a strong market for commercial real estate, Peacher said. He expects infrastructure businesses will be fueled by demand for new projects in the U.S., and alternative energy should have particularly solid growth in the years ahead.

The economic snapback from the pandemic will probably result in some inflation, but larger, longer-term trends can keep a lid on price increases, he said. Globalization will continue to allow companies to source products from the lowest-cost jurisdictions, and technology will help consumers find the cheapest products, he said.

“I don’t worry about rates rising as being an impediment to our business,” he said. “I don’t think it’s going to dent demand for our asset classes because rates would be rising from such a low base that institutional investors are going to continue to have to gravitate to alternatives.”

©2021 Bloomberg L.P.

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