Sun Life Eyes Credit, Hong Kong With $4.3 Billion to Spend

(Bloomberg) -- Sun Life Financial Inc. is looking for deals in sectors facing heightened uncertainty.

The Canadian life insurer is seeking bank partnerships in Hong Kong, investments in riskier private credit and tuck-in real estate purchases. Amid geopolitical tensions, market volatility and the effects of the coronavirus pandemic, Sun Life’s top executives remain on the hunt for acquisitions.

“We came into Covid-19 with a pipeline of conversations underway, and those conversations continue,” Chief Executive Officer Dean Connor said in a video interview. “We’re continuing to be actively out there talking to people about what’s possible.”

Acquisitions have been a common refrain for Sun Life executives in recent years, and the Toronto-based company has about C$5.8 billion ($4.3 billion) available for deals. While Connor is seeking more tie-ups across the firm’s key pillars of Canada, the U.S., Asia and global asset management, he sees the pandemic stifling activity in the near term.

“Not a lot of transactions take place because sellers are trying to figure out where they stand and are trying to consolidate their positions and they don’t want to sell at depressed values, and buyers are trying to figure out where they stand,” Connor said in the interview Monday. “We don’t think you’ll see a lot of transactions in the next six months.”

Sun Life shares have slumped 13% this year, compared with a 21% decline for the S&P/TSX insurance industry index.

The company is interested in deals in the seven Asian markets where it operates, including increasing stakes in joint ventures and striking partnerships with banks to distribute its insurance products, known as bancassurance. The firm would like to strike a bancassurance deal in Hong Kong along with other opportunities, even amid growing tensions with China that have some observers questioning the city’s future as an Asian financial hub.

“We’re not seeing Hong Kong as being an area that’s going to have problems in terms of a Canadian company that’s been there for a long time, that understands the market and understands the people and already has a business in China,” Chief Financial Officer Kevin Strain said in the interview. “So I think it’s finding your way through all the noise, but there’s lots of business opportunities.”

Sun Life sees Hong Kong as offering long-term growth opportunities and a springboard for additional business with mainland China in the Pearl River Delta -- which includes China’s tech center of Shenzhen and the manufacturing hub of Guangzhou -- through greater business access and an opening up of immigration across the economic region, said Strain, who previously spent five years overseeing the Asia business out of Hong Kong, where Sun Life has operated for 128 years.

U.S. Expansion

Closer to home, Connor’s interests include expanding in group benefits in the U.S. and building up its Canadian retail wealth management, though he said there isn’t much to buy currently in an industry dominated by Canada’s large banks. He also reiterated interest in rounding out Sun Life’s alternative asset manager, SLC Management, with a deal in below-investment-grade private credit.

“If you look at pension funds and institutional investors, generally speaking, the last decade has been one of moving up the risk curve in an ever-lower-return world,” Connor said. “We think there will be demand there, just because of the economics, and we think Covid is actually going to accelerate that demand.”

SLC Management deepened its real estate exposure with last year’s combination of Bentall Kennedy and GreenOak, creating a global real estate investment management adviser and services provider with $48 billion of assets under management. Connor sees opportunities for smaller deals to add to BentallGreenOak, which has a presence in 24 cities across a dozen countries.

‘Rock Star’

“There might be some things we want to tuck in and add to maybe extra geographical diversification there,” he said. Sun Life has “great exposure” in industrial real estate, which Connor described as the “rock star of the real estate world right now,” and its apartment holdings are “performing very strongly.”

Coronavirus quarantines worldwide are raising questions about post-pandemic demand for office space, with some companies finding that its employees are performing well from home.

“There will be some ebb and flows, but long term we think it’ll be a great asset category for long-term investors,” Strain said. “There will be demand for work in the office. The productivity, in being in the same place and working as a team, I don’t think that’s going to permanently go away.”

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