Sun Life Financial Inc. is set to buy a majority stake in U.S.-based Crescent Capital Group, a US$28-billion loan provider the insurer had been looking to add to its investment portfolio for almost two years.
Toronto-based Sun Life announced this week it intends to acquire a 51-per-cent stake in the Los Angeles-based credit manager for up to $450-million, with an upfront payment of about $370-million and a future payment of up to $80-million.
Cofounded in 1991 by Mark Attanasio, who later became principal owner of the Milwaukee Brewers, Crescent is one of the country’s largest alternative credit managers focused on below investment grade credit markets. Sun Life’s stake will help boost the insurer’s alternative asset management business, SLC Management, by adding exposure to mezzanine debt, middle-market direct lending in the U.S. and Europe, high-yield bonds and broadly syndicated loans.
SLC President Steve Peacher says the deal was the “last major piece of the puzzle” for his company, which had been searching for a private credit partner for “quite some time now" to expand its investment services for institutional investors such as pension plans.
“We want to invest in companies that give us a broad suite of capabilities that we can offer to institutional investors – especially during a time where interest rates are extremely low, and investors are continuing to look outside of public markets to alternative asset classes to find yield and total return – which we are doing with our own balance sheet,” Mr. Peacher said in an interview with The Globe.
“From the moment we conceptualized [SLC Management], one of the pieces we knew we wanted to add was a strong capability in alternative credit and direct lending.”
Sun Life’s announcement did not surprise industry analysts, who have been questioning executives during quarterly earnings calls about the company’s $3.5-billion in excess capital and its acquisition plans.
“For a while now, the company has made no secret that, despite multiple acquisitions, it was still interested in acquiring non-investment-grade private credit capabilities, which is in fact what it is getting with Crescent,” Scotiabank analyst Meny Grauman said in a research note.
Sun Life’s purchase comes at a time when many institutional clients are looking to reduce the number of relationships they have with individual investment managers, preferring the convenience of dealing with a single company that manages multiple investment offerings.
The Crescent deal also provides Sun Life with the opportunity to purchase the remaining 49 per cent of the company after five years from the closing date, which is expected to occur by the end of 2020.
Sun Life first began discussions with Crescent’s cofounders, Mr. Attanasio and Jean-Marc Chapus, in early 2019 and met with them in person several times before the start of the COVID-19 pandemic, when cross-border business travel was halted.
During that time, Crescent had been approached by “dozens” of interested asset managers looking to gain access to the private credit market, Mr. Attanasio told The Globe in an interview. But Sun Life’s "breadth” of global relationships and the similarities in conservative investment strategies drew the firm to partner with the Canadian insurer, he said.
Sun Life’s commitment to invest up to $1-billion in Crescent’s investment funds within two years was also seen as " favourable" in the partnership.
“We feel confident out clients will benefit from the significant [investment] [Sun Life] is providing, their deep understanding of the asset management business, and commitment to Crescent retaining full investment and operational independence in the firm,” Mr. Attanasio said.
Over the past five years, Sun Life has spent $1.9-billion on six deals – including Crescent – bumping SLC’s asset under management to $143-billion. In that time, SLC has broadened its exposure to real estate and infrastructure, two other alternative asset classes, by purchasing majority stakes in U.K.-based InfraRed Capital Partners and real estate investment management firm BentallGreenOak.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.