Sun Life Financial Inc. is set to acquire a majority stake in newly formed real estate investment management firm Bentall GreenOak, expanding its investment capabilities in commercial properties beyond North America.
The Toronto-based insurer announced plans on Tuesday to merge Bentall Kennedy, a North American real estate and property management firm that Sun Life acquired in 2015, with global real estate investment company GreenOak Real Estate. Sun Life Financial will also obtain a 56-per-cent stake in the new firm, which will become a part of Sun Life Investment Management.
The deal expands Sun Life’s real estate investment offerings to parts of Europe and Asia, where GreenOak mainly buys commercial real estate properties, renovates and sells them. These transactions can come with higher risk, but may generate higher returns compared to core investments offered by Bentall, which include commercial properties with long-term rental leases.
The deal, which is expected to close in the first half of 2019, will add GreenOak’s approximately $14-billion in assets under management to Bentall’s existing $48-billion in assets. It also includes nine global offices, one of them a commercial real estate lending operation in Britain.
Sun Life’s decision, which will expand its investment services for institutional investors such as pension plans, comes at a time when many of them are looking to reduce the number of relationships they hold with individual investment managers, preferring the convenience of dealing with one company.
“If the big institutional investors are going to be squeezing down the number of [investment managers] they are dealing with, you want to be one of the partners they choose,” said Steve Peacher, president of Sun Life Investment Management.
Other areas where Sun Life Investment Management is looking to broaden its exposure are within the private fixed-income and private credit markets, Mr. Peacher added, as well as acquiring an infrastructure equity manager.
The transaction is consistent with the insurer’s strategy of expanding its capabilities in alternative-asset management, a move that began in earnest with the formation of Sun Life Investment Management in 2014, several analysts noted after the announcement.
“Although one can critique the acquisition of an alternative-asset manager at this stage of the economic cycle (and a real estate manager after nearly a decade of strong tailwinds for this asset class), it is not a business that is under nearly as much pressure from outflows and competition from passive management as traditional managers are facing,” Gabriel Dechaine, an analyst with National Bank of Canada, wrote in a research note.
Upon the merger of the two firms, current Bentall executives Gary Whitelaw and Sonny Kalsi will assume the roles of CEO and president of Bentall GreenOak, respectively. Mr. Whitelaw and Mr. Kalsi will focus primarily on North America and Asia; while GreenOak co-founder John Carrafiell will become senior managing partner and specialize in Britain and Europe.
Sun Life Financial will contribute its interest in Bentall Kennedy and pay $195-million in cash to GreenOak shareholders in exchange for the 56 per cent stake in the new firm.
The insurer will have an option to acquire the remaining interest in Bentall GreenOak from the shareholders approximately seven years after the closing. Mr. Peacher said the company has every intention of doing so, as it “wants to own 100 per cent of the business in the future," but the deal was set up to provide an incentive for all key people to remain with GreenOak during the years after a merger.
Clare O’Hara