Sun Life could spend up to $1B on private credit

Investment managers chase higher returns as recession fears loom

Sun Life Financial Inc. is looking to add firepower in private credit.

The Canadian insurer is willing to spend $500 million to $1 billion (U.S.) 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 f or $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 say is becoming overextended amid a record-breaking $16.6 billion raised for direct lending funds through June 25 this year.

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.”