Sun Life Investment Management is expanding its private credit business, adding to the raft of money managers boosting exposure to the assets in pursuit of higher returns.
The unit of Canadian insurer Sun Life Financial expects to make a number of acquisitions this year and beyond, including in private credit, according to the asset manager’s president, Steve Peacher. The company hired Sam Tillinghast to help expand its U.S. private credit group, which allows investors to lend directly to companies, bypassing public markets.
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Money managers have stepped in to fill a void created after banks constrained by post-crisis regulations retrenched from lending to riskier small and midsize companies. BlackRock Inc. agreed to buy private credit manager Tennenbaum Capital Partners this month, while Brookfield Asset Management bought a stake in alternative investment firm LCM Partners in March. Demand for yield associated with less liquid debt will likely lift the market beyond $1 trillion in 2020, according to an estimate from the Alternative Investment Management Association, an influx of money that’s sparked warnings of excess.
“When you think of some of the biggest private credit players in the U.S., I want to be in that zone,” Peacher said in an interview. “At some point these markets are going to roll over, spreads are going to widen, there’s going to be credit distress. I sure as heck want to have teams on board because that’s where all the opportunity is.”
Private credit deals typically don’t register with the U.S. Securities and Exchange Commission. The loans are often more complex and can be made to firms who want to keep financial information confidential. While interest rates on the debt will generally be higher— and subsequently a lure for lenders— borrowers benefit because they don’t pay SEC registration and ratings fees, and gain flexible terms, such as longer maturities.
“The benefits are so compelling,” said Tillinghast, who started in January. “You’ll continue to see capital come into this space, with more strategic moves by independent private credit firms as well as insurance companies. There’s no going back.”
MetLife Inc.’s asset management unit is among the market participants, having struck $11.2 billion in private placement deals last year, the most it’s ever done. JPMorgan Chase & Co.’s asset management unit is raising $250 million for distressed debt as part of its private credit expansion. Credit Suisse Asset Management’s Private Fund Group set up a group for direct investments this month.
Sun Life Investment Management’s private credit group has more than $23 billion of assets, and did some 176 deals last year. Its transactions include lending to large, mostly investment-grade companies; project finance; private securitizations and middle-market deals.