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Paul Desmarais III poses for a portrait in Toronto, on Jan. 7, 2020.

Christopher Katsarov/The Globe and Mail

Power Corp. of Canada’s alternative-investment arm Sagard Holdings is launching a private-equity business that will focus on middle-market investments in Canada.

The new business is set to open Feb. 1 and will be led by Marie-Claude Boisvert, an industry veteran in private equity and former partner at Clearspring Capital Partners. She will begin her role this month along with partner Patrick Daignault, a former senior director of direct private equity at PSP Investments.

Over the past several years, Sagard Holdings has been building its investment presence across several asset classes, including private equity in Europe, private credit, health care royalties and venture capital. This is the first time it will enter the private-equity space in Canada, however.

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Sagard chairman and chief executive officer Paul Desmarais III said the new business is part of the company’s plan to become a major competitor in alternative-asset management in Canada.

“[The launch] builds on our many years of successful [private-equity] investing in Europe as well as our middle-market lending business in North America,” Mr. Desmarais said.

Sagard is making its entry into the private-equity market in Canada after many deals were put on pause last year owing to the COVID-19. Private-equity companies were left trying to deploy a lot of cash with very few deals on the table.

Despite that, Adam Vigna, Sagard’s chief investment officer, said opportunities in the middle market in Canada are greater today during COVID-19 than in the past. For example, he said Sagard’s credit business has seen about 20- to 25 per cent more deals than it did prior to COVID.

Ms. Boisvert said the company is looking to raise about $400-million from investors in its first private-equity fund and will aim to target companies that have at least $10-million in annual profit. The fund, she said, will have an all-purpose mandate but will focus on industries where Sagard has done well in the past, such as business services, manufacturing, industrial and financial services. It will avoid some industries, such as resources and commodities-related sectors.

“We are focused on healthy industries, ones that are not overly cyclical and have an opportunity for incremental growth versus the market itself, whether by consolidation of a fragmented industry or launching a new business unit altogether, “ Ms. Boisvert said in an interview.

Sagard will use its own capital to back the new private-equity division. While financial details are not being released, Mr. Vigna said fund sponsors typically contribute 10 per cent of the financing for a new fund, and the rest is raised from investors. (Historically, in other Sagard businesses, such as Sagard Credit Partners, the company has contributed 10 per cent of funds.)

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Sagard now manages US$5-billion in assets, of which more than US$2-billion came in during 2020. “COVID-19 has been an extremely busy time for us,” Mr. Vigna said.

For private equity, Ms. Boisvert said the middle market has become an “uncrowded” segment with certain “well-established” investors moving up-market for larger investments. As a result, Sagard’s “sweet spot” – companies within the $10-million profit range – has less competition targeting the segment.

“We are in a strong position to enter the mid-market space with a targeted $400-million fund, with capital to deploy and the ability to build a talented team of experienced investors from day one, and access to the Sagard ecosystem with a network, resources and reputation you generally don’t have when you launch a new fund,” Ms. Boisvert said.

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