Sagard to leap into secondaries, other strategies with PEM acquisition

Sagard, the fast-growing alternatives arm of Power Corp, struck a deal to create first-time strategic capabilities – including in secondaries.

The firm this week announced it would acquire a piece of Performance Equity Management, a sponsor of private equity strategies through funds and SMAs for institutional and retail clients.

Expected to close in January, the agreement gives Sagard an immediate “strategic stake” in PEM that will lead to “100 percent ownership in five years,” managing partner Jonathan Tétrault told Buyouts. With the closing, Sagard’s assets will rise to nearly $25 billion from $15 billion-plus.

Tétrault, who led the deal, said it provides Sagard with multiple benefits, among them inception of a new fund of funds, secondaries and co-investment platform. The platform is the latest addition to the GP’s burgeoning lineup of strategies, which include private equity, venture capital, private debt, healthcare royalties and real estate.

Sagard will partner with PEM to expand the platform. As part of this effort, it will “significantly scale PEM’s secondaries capabilities,” Tétrault said, including launching a family of standalone funds.

The new platform responds to demand from LPs in Sagard’s third-party funds, especially high-net-worth investors – a group the shop is looking to further cultivate.

“Growth in the retail space continues to accelerate,” Tétrault said. “Though still in its early days, we expect to see a decade of rapid growth.” To gain more exposure to the trend, Sagard will support the build-out of PEM’s existing product distribution to retail and private wealth channels.

M&A as a growth tool

PEM is the second acquisition led by Tétrault. The first, made two years ago, involved EverWest Real Estate Investors, a private real estate firm owned by Great-West Lifeco, a Sagard investor. This year, EverWest was rebranded as Sagard Real Estate.

M&A represent “an important path” in Sagard’s “mission to become a global, multi-strategy alternatives manager,” Tétrault said. “We have very clear views on the spaces we want to grow into over the next couple of years.”

The Sagard-PEM hook-up is only the latest in a recent run of M&A across the private equity industry. In May, TPG entered into a $2.7 billion deal to buy credit and real estate manager Angelo Gordon. And in September, Bridgepoint and energy transition specialist ECP agreed to merge, reflecting an upfront value of about $1 billion.

A driver of the consolidation may be slower fundraising, which is producing a mix of haves and have-nots. There is evidence this is causing some small and mid-sized GPs wishing to continue expanding to explore fresh options – such as teaming up with a larger sponsor.

M&A is accelerating because the environment is “extremely challenging” for some small and mid-sized firms with limited track records, Tétrault said. Others at the smaller end of the industry are doing “very well” but see banding with a large partner as a way to jump-start growth.

PEM is an example of the latter, he said, as it was founded by “a team that has been working together for more than 20 years,” beginning at General Motors Investment Management Corp. Led by president John Clark, PEM has generated a “strong track record.”

Primed for more growth

Sagard was formed in 2002 at the initiative of Power Corp, a listed financial holding company controlled by Canada’s billionaire Desmarais family. Paul Desmarais III today is Sagard’s chairman and CEO. The firm got underway with a single private equity strategy, Sagard MidCap, focused on the European mid-market.

Expansion since then owes to new strategies – facilitated by M&A – as well as performance and talent acquisition, Tétrault said. For the moment, Sagard’s priority is to develop “our existing asset classes,” for which further M&A might yield “potential opportunities.”

Sagard’s ramp-up is being backed by Abu Dhabi sovereign wealth fund ADQ and the Bank of Montreal, which bought minority stakes earlier this year. Another partner is Great-West, which at the same time increased its existing minority holding.

The trio reportedly invested more than $100 million and committed to supply up to $2 billion of capital over the next five years.

Tétrault joined Sagard in 2020 from renowned circus operator Cirque du Soleil Entertainment Group, where he was the president and COO. Before, he was a senior partner with McKinsey & Company.