Executives at SLC Management, the institutional fixed income and alternatives arm of Toronto-based insurer Sun Life Financial, say the business SLC built on the back of real estate, private credit and infrastructure acquisitions around the start of the decade has reached an inflection point, with its focus set to shift from empire building to positioning the firm to become greater than the sum of its parts.
Steps SLC is taking now toward that end include a greater sales and distribution focus on the breadth of the firm’s offerings, just as institutional clients are looking to do more with fewer external partners; an SLC-level equity class for key executives of the firm’s boutiques; and a newly launched executive committee of those leaders to consider when joint efforts could make sense for the broader platform.
What will not change, said Executive Chair Stephen Peacher in a recent interview, is SLC’s hands-off approach to overseeing its alternatives boutiques, a cornerstone of its efforts to build a private markets powerhouse since the firm broke out of parent company Sun Life a decade ago.
SLC has “very consciously” limited itself until now to the provision of seed capital — otherwise opting to allow each of its businesses to run itself, even if that meant leaving potential synergies on the table, Peacher said.
That do-no-harm approach was crucial to reassuring change-averse clients as SLC embarked on a flurry of acquisitions, taking majority stakes in Miami Beach, Fla.-based real estate firm BentallGreenOak in 2019; London-based infrastructure investor InfraRed Capital Partners in early 2020; and Los Angeles-based alternative credit investor Crescent Capital Group at the start of 2021, he said.
It was important for clients who hired BGO or Crescent to be able to say “yeah, nothing’s changed. It’s business as usual,” and the formula has yielded results, Peacher said. “We and our teams are still fully intact, our client bases are fully intact and we’ve been able to grow the businesses because we’ve let them do their thing," he said.
SLC’s three private markets boutiques managed a combined $140 billion in client assets as of Sept. 30, up from $87 billion at the time they were acquired, according to a spokeswoman for the firm.
The firm, meanwhile, has suffered only one quarter of net outflows since its founding — the second quarter of 2020, when market disruption from the COVID-19 pandemic was at its peak, Peacher noted.
Together with the public and private fixed-income capabilities SLC extracted from Sun Life at the time of its launch in 2014, the firm’s assets under management currently come to roughly C$387 billion ($286 billion) as of Sept. 30, with C$235 billion managed for external clients and the remainder managed for Sun Life’s general account.
As of March 31, 2021, the first quarter to include all three alternatives boutiques, SLC's AUM stood at C$308 billion, with C$160 billion in third-party assets, for respective gains through Sept. 30, 2024 of 25.6% and 46.9%.
Sun Life executives at an Investors Day gathering in November conceded that SLC’s decision not to focus on generating synergies among the firm’s various investment pillars has carried opportunity costs. Going forward, SLC will move to create a “a more coordinated platform,” laying the groundwork for accelerated growth, Peacher told the gathering.
With SLC’s acquisitions increasingly in the rearview mirror, there’s room to focus a bit more on “creating value from having all of these things (under) one umbrella,” even if disruptive attempts at integration will remain off limits, Peacher explained in the interview.
“I’m trying to find a sweet spot where each of those businesses, their identities, their cultures are not changed but their leaders start to say, ‘Hey, there’s value to us in being part of this platform,’” Peacher said.
Decisions on whether the boutiques should work together on topics such as artificial intelligence or cybersecurity will be left to the leaders of those businesses, coming together now monthly on the executive committee SLC launched in the summer of 2024, Peacher said.
If joint efforts “make sense to them, we’ll do it. If it doesn’t, we won’t,” he said.
New SLC share class
Meanwhile, executives with SLC’s real estate, private credit and infrastructure businesses, who until now have only owned equity in their respective boutiques, will soon be able to shift some of their holdings to a new SLC share class.
At SLC’s Investor Day, Sonny Kalsi, the BentallGreenOak co-CEO recently named president and CEO of SLC, called the creation of that new equity class a first step to getting key leaders more aligned with the goal of harnessing the power of SLC’s broader platform and bringing the firm’s strategies together in a way that’s additive.
Kalsi said he was looking to transfer 100% of his BGO equity to SLC. If “you want to know how an investor really feels about something, ask them where they’re invested,” he said.
Meanwhile, the general backdrop for SLC’s business remains favorable, executives say.
Institutional capital continues to flood into market segments such as private credit and infrastructure, and even real estate — outside of the COVID-hit office sector — is beginning to show signs of life now, Peacher said.
“When you look across our breadth of strategies now, almost every one of our clients … invests in real estate and fixed income and infrastructure and private credit, and we’ve got all those capabilities," Peacher said.
“We increasingly want to be able to make sure that as we present ourselves to the market, people know that under (the) SLC umbrella, we’ve got these capabilities,” with scope, hopefully, to increasingly do more than one thing for clients going forward, he said.
SLC executives have talked about such cross-selling opportunities for years now but, Peacher noted, “to date, we haven’t pursued anything.”
Roughly speaking, out of more than 1,400 institutional client relationships at present, only 50 have more than one SLC-affiliated mandate, Peacher said.
But if SLC’s predominantly institutional private markets businesses look set to enjoy continued tailwinds, the more promising growth opportunity now will likely come from the growing trend of alternative strategies being offered to high-net-worth investors, Peacher said.
The firm’s most recent big acquisition — taking a majority stake two years ago in U.S. retail distribution firm Advisors Asset Management — positions SLC to pursue that opportunity, which Peacher figures remains “in the latter half of the first inning.”
“This is where I would say we’re building up,” he said.