By Ben Dummett 

TORONTO-- Sun Life Financial Inc. launched a new money-management business Thursday aimed at tapping pension funds' growing appetite for real estate and other private investments.

Sun Life, Canada's third-largest insurer by market capitalization and owner of U.S. money manager MFS Investment Management, said the new business will offer an investment fund focused on private debt, another that holds commercial mortgages and a third that invests in commercial real estate in Canada's urban centers.

The Toronto-based company is betting these funds will attract money from Canadian defined benefit pension plans with assets of 10 billion Canadian dollars ($9 billion) or less, and other institutional investors looking for reliable long-term, yield-generating investments.

The new business is consistent with the company's strategy of expanding its asset-management business, one of three core operations that also include insurance and wealth management.

Canada Pension Plan Investment Board, Caisse de dépot et placement du Québec and other Canadian pension companies that manage in some cases over 100 billion Canadian dollars in assets are already investors in real estate and other private asset classes. The long life of these investments and the steady income they generate match up well with the funds' long-term pension liabilities. And their large size means they can afford to hire the analysts needed to identify potential investments that often require considerable due diligence because of the complexity of their structures and a lack of available public information on them.

Sun Life is targeting smaller pension plans that can't afford their own big investment staff, but are big enough to require a sophisticated asset mix, betting its in-house experience will help attract business.

Its in-house investment team of about 200 currently oversees around 110 billion Canadian dollars in assets, and like pension funds, is focused on generating yield over long periods that correspond with the payout of the firm's life insurance policies. About 38 billion Canadian dollars of these assets are in private-market investments including real estate, private debt and mortgages.

"We think pension funds have exactly the same challenge we do," Steve Peacher, Sun Life's chief investment officer, said in an interview. "They've got long liabilities...They need yield [and] reliable investments" and the new funds offer "higher yields than they can get in the public markets," he said.

Sun Life's new fund products also help reduce risk by cutting exposure to the public markets, Mr. Peacher said.

Private-market investments often take longer to sell than publicly traded securities, but pension funds' long-term liabilities allow them to accept that liquidity risk, the executive added.

Write to Ben Dummett at ben.dummett@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Sun Life Financial (NYSE:SLF)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Sun Life Financial Charts.
Sun Life Financial (NYSE:SLF)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Sun Life Financial Charts.