As lenders, co-investors and limited partners, a number of insurance companies are placing big bets on the high-risk, high-reward middle market.
Canada’s third-largest insurance company, Sun Life Financial Inc, earlier this month rolled out an alternative investment management business, including a fund ear-marked in part for mid-market senior loans, expected to grow to the billions of Canadian dollars over the next few years.
Meantime, GoldPoint Partners, a subsidiary of New York Life Insurance Company, has so far closed on at least US$350 million for its latest co-investment fund, while New York Life affiliate Private Advisors LLC, has raised more than US$100 million combined for its latest co-investment and lower-mid-market fund of funds. Pacific Life Insurance Co, PPM America, an affiliate of UK-based Prudential plc and SL Capital, an affiliate of Edinburgh-based Standard Life Investments Ltd, have also recently been marketing similar products—see accompanying table.
In introducing its alternative investment management platform, Sun Life Financial is in part building off the work of a private fixed-income team that has been investing more than $4 billion (US$3.6 billion) per year, mainly in North America, using primarily the insurance company’s balance sheet, according to Stephen Peacher, chief investment officer. About $800 million per year of that has gone into mid-market senior loans, a meaningful portion of which has helped finance sponsor-backed deals. The private fixed-income team also channels $200 million to $250 million per year to buyout and turnaround funds, a source of lending deal flow. The insurer manages about 60 active funds in its portfolio, including ones sponsored by Brookfield Asset Management, Kohlberg Kravis Roberts & Co and Oaktree Capital Management, Peacher said.
All told, with its new platform Sun Life Financial plans to create three funds, all raised from Canadian institutional investors. One will be ear-marked for Canadian commercial mortgages, and one for Canadian real estate. Sun Life Private Fixed Income Plus Fund, expected to launch in the next month or two pending regulatory approval, will be earmarked for mid-market senior loans and other kinds of lending pursued by the private fixed-income team, such as infrastructure lending. (It will not, however, include an allocation for fund commitments.) Expect Sun Life Financial to seed the six-year-duration pool with some $150 million and to cap fundraising at $300 million in its first year. A 35-professional team working mainly out of offices in Toronto and Waterloo, Ontario will invest the fund.
In a separate interview with sister news service Reuters, Peacher said Sun Life Financial has been able to generate an extra 150 basis points over corporate bonds by investing in private fixed income. One goal of the fixed-income plus fund, Peacher told Buyouts, is to give Canadian institutional investors the opportunity to achieve similar high returns in a “very straightforward and very LP-friendly” fashion. The fund, for which there is no immediate plans to apply leverage, would charge a scaled management fee based on commitment size and does not charge a carried interest; any deal fees generated by the sponsor go to the fund, he said.
New York Life Boutiques
Tom Haubenstricker, chief executive officer of GoldPoint Partners, a private equity subsidiary of New York Life Insurance Company, remains bullish on the middle market, where the firm backs funds and makes mezzanine and equity co-investments. New deals are challenging, Haubenstricker said, given the intense competition for properties. But he said he’s still seeing sponsors show good discipline on price. He added that “it’s a great time to exit,” with debt “very attractively priced right now.”
Photo of Sun Life building in Montréal courtesy of Shutterstock