Sun Life Financial Inc.’s $560-million purchase of real estate services firm Bentall Kennedy Group can be viewed as an effort by the life insurer to beef up its real estate and mortgage investment capabilities.
“This is a perfect strategic fit for us at the right time,” said Steve Peacher, president of Sun Life Investment Management and chief investment officer of Sun Life Financial (SLF-T).
The acquisition fits with Sun Life’s focus on asset-liability management, fixed income and alternative asset classes and adds to its real estate and mortgage investment capabilities.
“We have put a lot of emphasis on our asset management pillar. We are very focused on building up Sun Life Investment Management both organically and through acquisition and we have excess capital that allows us to move very quickly on something like this,” the Sun Life exec added.
For its part, Bentall Kennedy’s corporate life does not appear to substantially change: the firms will combine their real estate investment management teams and Bentall Kennedy will operate a unit of Sun Life Investment Management; Bentall Kennedy will keep its brand name and act as Sun Life’s exclusive real estate investment management platform.
Combined, the real estate and mortgage teams of Bentall Kennedy and Sun Life Investment Management will have $47 billion in assets under management with more than 550 institutional clients and investors.
Time for a change
Since the start of the century, Bentall has been owned by British Columbia Investment Management Corporation (bcIMC) and the California Public Employees’ Retirement System (CalPERS), which provided it with stability but which Bentall has outgrown.
It was not an issue in 2001 when bcIMC and former owner Ivanhoe Cambridge (Caisse de Depot et Placement du Quebec) purchased the company and contributed a combined 75 per cent of the firm’s revenue base. (The Caisse sold its stake in Bentall to CalPERS in 2012).
Today, that revenue split has reversed. “As we looked up last fall, we had 550 other clients besides the two owner clients and 75% of our revenues now came from that multi-client business,” said Gary Whitelaw, Bentall’s chief executive officer.
“More conventional in the industry”
“We recognized that it was time to consider some other structures that were more conventional in the industry that would provide some additional tools that would be very helpful at this stage in our evolution,” said Whitelaw.
“Ownership we thought would be simplified by having a financial services organization that was highly regarded, highly compatible with our core values and someone for whom investment management was a core business.”
Enter Sun Life, which has been a Bentall Kennedy client for a little over a decade. “This grew as a natural extension out of that longstanding relationship.”
Given Bentall’s dual owner structure, the company’s management simply couldn’t hand over the keys in a sale to Sun Life, however.
A formal sale process took place earlier this year that went through two rounds of bidding and resulted in the Toronto-based insurer winning the day.
“Sun Life emerged as everybody’s favourite, both quantitatively and qualitatively,” said Whitelaw. “It was really a compelling vision as we talked more and more about how the two business units could fit together, what it could mean for our respective clients and how we could grow together.”
It’s about assets
Asked to explain the rationale for the deal, Sun Life’s Peacher cited the need to expand to the insurer’s asset management playbook.
That includes taking some of the private equity investment strategies used corporately by Sun Life and offering them to other institutional investors facing the same challenges.
Sun Life started up a business in Canada and purchased a small U.S. fixed income manager in the U.S.
“When the Bentall Kennedy opportunity presented itself, it really fit perfectly because real estate and also commercial mortgages are two areas that we have relied on for decades at Sun Life,” said Peacher.
“Those are two areas that we think are great for other institutional investors and to be able to combine with an entity we really think is a premier real estate investment manager, not only in Canada but the U.S. (we thought was a prime opportunity.)”
Mackenzie Investments survey
He noted a February 2015 survey by Mackenzie Investments which indicated a growing appetite for real estate among global investors. “They are especially interested in North American real estate where Bentall Kennedy has a very strong position.”
Peacher also sees an opportunity to market Bentall Kennedy’s U.S. investment fund to Canadian and global investors and to market real estate investment to defined contribution pension funds hungry for yield.
“We also think that there is going to be an emerging opportunity with institutional investors allocating to the commercial mortgage market,” said Peacher. “That is a market that traditionally has been dominated by insurance companies.
“We have a strong operation at Sun Life and when we combine that with the bigger Bentall Kennedy and Sun Life real estate operations, it really just adds credibility in an asset class we think is going to be a growing asset class for pension funds and other institutions.”
Sun Life’s “sizable” real estate and commercial mortgage teams that both invest on behalf of the insurer across North America will report to Whitelaw and Bentall Kennedy under a new arrangement.
Sun Life has also recently launched a commercial mortgage fund aimed at pension fund investors in Canada and management expects to roll out a similar U.S. fund as well.
Ready to go
Given Sun Life’s intention to keep Bentall as a stand-alone entity, Peacher does not expect any integration lag.
“I think we will hit the ground running. We don’t have any integration here to do, it is really going to be business as usual at Bentall Kennedy. Our teams at Sun Life will become part of that organization but will still focus on the general account.”
The complimentary structure and capabilities of the two companies was one of the selling points for Bentall management, said Whitelaw. “It is not like you wonder what the marriage is going to be like.”
Bentall employs 1,100 in Canada and another 300 in the U.S.