Sun Life Financial Inc. has launched an asset management business that will offer its investment management expertise to pension plans and other pooled funds.
As an insurer, Sun Life has built a pool of expertise to manage assets, and now plans to offer it to other institutional investors, including defined benefit pensions such as those offered by both private and public sector employers.
The new firm, Sun Life Investment Management, will take over investment operations for sister company Sun Life Assurance Co. of Canada with about $100 billion in assets, as well as offering its services to other institutional investors.
It will be headed by Steve Peacher, who has been chief investment officer for Sun Life and leads an investment team of more than 200 employees worldwide.
The asset company is being set up at a time when Ontario is looking at setting up a new public pension plan for all its residents, as Ottawa as blocked its bid to expand the CPP.
But Peacher says, even if that pension never comes to fruition, there is a need for help with asset management among existing pension funds, particularly in a low interest rate environment.
"There are two big trends that we see. One is that it’s clearly been a low-yield environment...we think that’s going to continue for a number of reasons, including that inflation is likely to stay low," he said in an interview with CBC's The Lang & O'Leary Exchange.
"For that reason, pension funds, which is our target market, and other investors have to look far and wide to find more yield. They have to look outside the public markets to private markets where they can access more yield without just taking more credit risk," Peacher added.
Pension firms have had an unusually good year in 2013, with Mercer reporting they are at the healthiest level in 12 years.
That health is built on the steep runup in equity markets, as most pension funds have some of their assets in equities. Peacher believes funds are going to want to diversify from equities to safer investments.
"As funding ratios improve for pension funds, we’ve seen huge improvements — by some reports 25 per cent improvements — in funding ratios in both Canada and the U.S.," Peacher said.
"I think there is a natural move away from risky assets like equities towards fixed income assets to better match assets with liabilities."
The asset management firm’s first offerings will be three pooled funds devoted to private fixed income, Canadian real estate and Canadian commercial mortgages.
It is awaiting regulatory approval on the three funds, but expects to begin operations in the first or second quarter of the year.
The business will start in Canada, but there are plans to expand it to other markets, according to Sun Life Financial president Dean Connor.