Sun Life Financial is acquiring a majority stake in InfraRed Capital Partners, a global infrastructure and real estate investment manager with about $12 billion in assets, the firm announced Wednesday.
The London-based manager will become part of SLC Management, Sun Life’s alternative asset management business that it’s been building since 2012 to offer outside clients access to the same types of active institutional investment strategies it uses for the portfolio of the insurance company. Part of the pitch to third parties is that Sun Life invests significant assets alongside outside clients, aligning interests.
SLC has been looking to expand into infrastructure equity for some time, said Steve Peacher, president of SLC Management, in an interview.
“The nature of these investments tend to be long-dated and high yielding,” said Peacher. “These projects generate cash flows for many years, and we thought it would be a natural fit.”
At the same time that Sun Life first reached out to InfraRed, the firm was considering partnering with a firm that could help it move into North America. Most of the approximately 200 projects InfraRed has invested in around the world, as well as its investor base, is in Asia and Europe.
“There’s not a lot in North America,” said Peacher. “They ran the risk of being left behind if they didn’t establish a strong presence in the U.S.”
SLC’s business includes fixed income managers Ryan Labs Asset Management and Prime Advisors.
Last year, Sun Life merged its real estate firm Bentall Kennedy, which it acquired in 2015, with new acquisition GreenOak Real Estate. The combined real estate business is now part of SLC but separately branded as BentallGreenOak. Although InfraRed has a small real estate business, it will be kept independent from BentallGreenOak.
InfraRed was attracted to SLC’s product design and distribution capabilities in the U.S. and Canada, as well as seed capital, Peacher said. As part of the deal, SLC is committing $400 million in seed capital to new products.
“With seed capital you’re able to demonstrate two things to investors. You can say, ‘Here are the types of investments we’ll be making if you invest with us. And our parent’s money is sitting right next to yours,’” said Peacher. Among the potential future projects will be the launch of a renewables-type fund in the U.S.
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Sun Life will acquire an 80 percent stake in InfraRed for about $390 million upon closing. InfraRed’s management will have a put option to sell the remaining interest to Sun Life within four years of closing. Sun Life will have the option to call any remaining interest after five years.
“We want to build a suite of investment capabilities that aligns with what we see as institutional investors’ needs and dovetail with how we invest our own money at Sun Life,” said Peacher.
Peacher said InfraRed will be able to leverage expertise that SLC has in lending against infrastructure projects like hydro, solar and wind farms.