Sun Life, NY Life among insurers stoking mid-market fires

Canada’s third-largest insurance company, Sun Life Financial Inc., earlier this month rolled out an alternative investment management business, including a fund earmarked 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 $350 million for its latest co-investment fund, while New York Life affiliate Private Advisors LLC, has raised more than $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 C$4 billion ($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 C$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 C$200 million to C$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 earmarked 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 C$150 million and to cap fundraising at C$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.” 

GoldPoint Partners, which has more than $9 billion in assets under management, defines the middle market as companies generating some $20 million to $100 million in EBITDA, with enterprise values up to $1 billion. The firm makes about $1 billion per year in fund commitments, $25 million to $100 million at a time, using capital both from New York Life’s balance sheet as well as from a family of funds of funds. The firm wrapped up its latest fund of funds, NYLCAP Select Manager Fund II LP, which had an offering amount of $250 million, at the end of the year. Haubenstricker said the firm has an appetite for first-time groups, and recently committed to the debut funds of Alvarez & Marsal Capital Partners and Blue Sea Capital. 

The investment team has committed $9 billion to more than 270 funds since 1991. Their sponsors produce deal flow for GoldPoint Partners’s co-investing and mezzanine investing, the money for which comes largely from third-party investors. According to Haubenstricker, the firm typically consummates eight to 12 co-investments per year of $15 million to $40 million each. On the mezzanine side, the firm also does eight to 12 investments per year in the $15 million to $55 million size range. The firm anticipates launching its next mezzanine fund in the second half of 2015, Haubenstricker said. It closed its third at slightly more than $1 billion in 2012.

Private Advisors, a hedge fund and private equity fund-of-funds manager in which New York Life acquired a 60 percent interest about three years ago, manages a little over $2 billion in private equity assets, including primary commitments, co-investments, mezzanine investments and secondary buys. (It also manages a little over $3 billion in hedge fund assets.) The firm’s money comes from a diversified base of endowments, foundations, pension funds and family offices.

“We really live and breathe the small company investment space in North America,” said Partner Christopher Stringer.

On the primary side the firm tends to commit $100 million to $250 million per year altogether to five to 10 funds, including first-time institutional funds; the funds are typically $750 million or smaller. The firm also invests $35 million to $50 million per year directly in six to eight co-investment deals. Stringer said that in picking co-investments Private Advisors takes care to make sure that its sponsors aren’t going off-strategy, such as by tackling a bigger deal than they usually do.

As a rule Private Advisors favors sectors going through structural changes, like healthcare and energy services. It is particularly drawn right now to sponsors targeting growth equity, turnarounds and corporate carve-outs, in part because of the high prices companies are commanding in the lower middle market, Stringer said.

High prices have “benefited us on the exit side of things,” said Stringer. “We’re just wary of it short term on the buy side.”

Andrea Hopkins, a senior reporter for sister news service Reuters, contributed to this article

(Correction: In the attached table Standard Life Investments Ltd was misspelled in the original version of this article.)