Sun Life launches asset manager, eyes pension plans

TORONTO Thu Feb 6, 2014 2:00pm EST

TORONTO Feb 6 (Reuters) - Sun Life Financial Inc launched an asset management business on Thursday to provide private asset class pooled funds for pension plans and other institutional investors looking to boost yield with alternative investments like real estate.

Sun Life Financial, Canada's third-largest life insurer, which already has a big defined benefit pension business, said the new business, Sun Life Investment Management Inc., will offer the full services of an asset manager to institutional investors seeking access to the hot alternatives market.

Like many other investors, defined benefit pension plans have struggled to earn the returns they need to meet their payout obligations in the current low-yield environment, and are looking for options.

Sun Life's initial product suite includes three pooled funds, including a private fixed-income fund, a Canadian commercial mortgage fund, and a Canadian real estate fund, which will try to increase the rate of return investors can typically get with corporate bonds, with less downside risk.

Sun Life's chief investment officer, Steve Peacher, said Sun Life has been able to get an extra 150 basis points over and above corporate bonds by investing in private fixed income, and the new funds will seek that kind of additional yield for defined benefit pension plans.

While the asset management company is new, the investment team will be the same one that already manages about C$100 billion in assets for Sun Life Assurance Co of Canada.

Peacher said there is a big hole in the market right now for Canadian pension funds and other institutional investors looking to shift some of their portfolio into alternative asset classes, which typically include real estate, private equity and debt, and infrastructure.

"In today's commercial mortgage market, you can make a loan against a solid commercial building ... and get paid yields that are 180 or 200 basis points over government of Canadas, in assets where your downside protection is very, very good because you are lending against quality commercial real estate," Peacher said in an interview.

"That's an attractive market to be in, yet it's a market that is hard for pension plans to access."

While Sun Life has been a strong player for pension funds looking to shift risks as they become fully funded and approach the annuity stage, it has not previously chased clients looking to boost yield with alternatives.

Peacher said the company would focus first on the C$1 trillion Canadian pension plan market but expects to grow into the U.S. pension plan market, since everyone is looking to both boost yield with alternative investments and to de-risk.

"We fully expect we'd have AUM measured in the billions over the next few years," he said.

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