Canada Pensions Scale Back Risk

Terry Flanagan

Pension plans that are looking to scale back risk are the intended audience of Sun Life Financial’s new asset management business, Sun Life Investment Management, that will specialize in providing private asset class pooled funds and liability driven investment strategies for defined benefit (“DB”) pension plans and other institutional investors in Canada.

Sun Life Investment Management, which also encompasses the investment operations of Sun Life Assurance Company of Canada that manages approximately $100 billion in assets, including approximately $38 billion in private asset class investments, is headed by Steve Peacher, Sun Life Financial’s executive vice president and chief investment officer, who leads an investments team of more than 200 employees worldwide.

“With the initiation of this business, I’ve got a two-pronged title at Sun Life, so I’m chief investment officer at Sun Life, and I’m also the president of Sun Life Investment Management, which is a new entity,” Peacher said. “As CIO, I oversee the team that manages Sun Life’s general account, which is also the team that will be investing for third parties under this new asset manager.”

As its initial product suite, Sun Life Investment Management will offer three pooled funds — the Sun Life Private Fixed Income Plus Fund, the Sun Life Canadian Commercial Mortgage Fund, and the Sun Life Canadian Real Estate Fund – as well as liability driven investment strategies. These products and services are expected to be available starting later this quarter or in the second quarter this year, pending final regulatory approvals.

As one of Canada’s leading investors in private fixed income, commercial mortgages and real estate, Sun Life is in a position to use its strong brand and relationships.

“Working with the DB pension community we see a growing market for the types of strategies and investments we use for our insurance portfolio,” Peacher said. “We’ve already got a big business in third-party asset management with MFS Investment Management, Sun Life Global Investments, which is a line of third-party managed mutual funds that we offer in Canada, but we want to do more than that.”

Peacher heads a 200-person team that manages $110 billion of Sun Life general accounts. “We’re a big investment operation on our own,” he said.

As Sun Life surveyed the institutional marketplace, it identified two trends that that it thought could mesh with its asset management expertise. One is the trend among DB plans in particular, but also other institutional asset investors, to consider alternative assets. The second was the trend by DB pension plans to de-risk and move more to a liability-driven approach to investing to better match their assets and liabilities.

The annuity market in Canada is expected to balloon in size as more employers review the implications of a potential annuity buyout or buy-in for their plans. There are indications that the volume of group annuities placed in 2013 has been the highest in the industry’s history.

“Financial health of Canadian pension plans improved dramatically in 2013, which has created further opportunities to de-risk.” said Hrvoje Lakota, head strategist, dynamic de-risking solutions at Mercer Canada. “For the first time in more than a decade, some plan sponsors are in an enviable position where they can discharge their pension obligations and take them off their books without having to make additional cash contributions. As a result, 2013 was a record year for the Canadian annuity market and we expect to continue to see significant growth in the coming years.”

Sun Life Investment Management will offer pension plans “customized separate accounts where we manage the fixed-income portion of a pension plan, and we’ll manage it in a way to best match the pension plan’s liability streams,” said Peacher.

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