Sun Life CEO Sees Alternative Assets Gaining in Low-Yield Era

(Bloomberg) -- Sun Life Financial Inc. Chief Executive Officer Dean Connor, whose construction of the insurer’s $245 billion alternative-assets manager marks one of the top achievements of his tenure, said private investments will remain attractive in the low-yield world that lies ahead.

With low interest rates and an abundance of capital seeking opportunities depressing bond yields, the premium offered by investments with limited liquidity such as private credit, infrastructure and renewable-energy projects will continue to draw interest, Connor said in an interview. Sun Life has already made certain real estate investments available to Canadian group pension plan members, and retail investors will seek out similar opportunities, he said.

“The illiquidity premium related to private assets is precious and is increasingly highly sought after,” Connor said in an interview. “Those nominal returns have come in -- as all returns have -- but they’re still superior to what you see in public markets.”

Connor, who steps down as CEO next week after almost a decade at the helm, assembled Sun Life’s SLC Management alternatives arm largely through acquisitions, including last year’s roughly $338 million purchase of Crescent Capital Group. SLC now has about $63 billion in real estate equity and debt, $57 billion in private fixed income, and $12 billion in infrastructure among its assets under management, which also includes around $106 billion of public debt.

The growth of Sun Life’s asset-management business -- which also includes the more retail-focused MFS Investment Management -- was a key pillar of the plan Connor presented to the board when he applied for the CEO position in the wake of the global financial crisis to lessen the life insurer’s dependence on interest rates.

The company’s $1.35 billion sale of its capital-intensive U.S. annuity business in 2013 was another major step in that direction, along with its move away from long-term care insurance, Connor said.

Returns Outperform

Taken together, Connor’s strategy has proved effective for Sun Life. The company’s market value has more than tripled to about C$37.9 billion ($30.4 billion) during his tenure, and assets under management more than doubled to about C$1.3 trillion as of the first quarter’s end. Annual returns for Sun Life shares averaged 18% from the end of 2011 through last year, topping the 7.5% average for the S&P/TSX Composite Index and 11% for the S&P/TSX Financials Index.

Kevin Strain, Sun Life’s chief financial officer, will succeed Connor as CEO.

One major development from Connor’s tenure that wasn’t in his original plan was the massive technology investments Sun Life has made, which helped the firm weather the Covid-19 crisis. In addition to the mobile apps and video-conferencing technology that helped the firm stay connected to customers, Sun Life has aggressively adopted artificial-intelligence models for policy underwriting. Those have proved effective enough that Sun Life now processes about 80% of its life-insurance applications without requiring blood work, Connor said.

“After a few years in the job, a few trips to Silicon Valley, just watching what was going on, leaning into that quickly and hard -- that was an example of where we had to pivot,” Connor said.

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