Canadian private lender mimics Apollo’s insurance-backed investment vehicle
Summarize this article with:
SAF Group has partnered to create a reinsurance vehicle that gives it control of about $2.5 billionAuthor of the article:You can save this article by registering for free here. Or sign-in if you have an account.SAF Group is charging into a corner of private credit long dominated by Apollo Global Management Inc. and Brookfield Corp., launching an insurance-backed investment vehicle to fuel lending to borrowers starved of flexible financing. If followed by others, the move could help redraw the contours of the Canadian private credit market.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The Calgary-based firm, led by Ryan Dunfield, has partnered with American Life & Security Corp., a Nebraska-based life annuity provider, and the private capital solutions unit of GQG Partners, a US$172 billion global investment manager, to create a reinsurance vehicle that gives it control of about $2 billion to $2.5 billion. The structure, which has the option to expand, was funded with roughly $250 million in regulatory capital, according to Dunfield.“It gives you the closest thing to permanent capital,” he said in an interview.Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Under the arrangement, SAF will invest the assets in partnership with Antarctica Investment Advisors, a firm associated with American Life. The capital will support loans ranging from $15 million to $250 million to borrowers that rarely have access to flexible financing — such as evergreen private equity funds, mortgage investment corporations, real estate mortgage pools, auto-loan portfolios and other private-credit managers, he said.Dunfield said the new capital expands the firm’s capacity but does not change its strategy, which remains focused on the Canadian middle market.Insurance capital has become one of the most important funding sources for private credit globally. Apollo helped pioneer the model more than a decade ago by turning annuity provider Athene into a major base of long-term assets that could be invested in private loans. Brookfield is now embracing the same strategy, with chief executive Bruce Flatt telling shareholders that the company is evolving into an investment-led insurer.But while the likes of Apollo and Brookfield have long used insurance affiliates to scale private credit, SAF’s move is notable precisely because of its more limited size. It is the first mid-sized Canadian credit manager to use a reinsurance structure of this kind, following similar steps by firms such as Crestline Investors in the U.S.“It gives us the same kind of tools the larger U.S. firms use, but focused on Canadian borrowers,” Dunfield said.His firm’s advance comes amid deepening strains in parts of the Canadian private credit and equity market. Several funds, including those run by Kensington Capital Partners and Trez Capital, in recent months have restricted investor withdrawals due to liquidity pressures.Part of Dunfield’s business is lending to some of the funds that face those liquidity constraints, he said. But the firm’s exposure is limited to senior-secured loans backed by large diversified pools of capital, including mortgages or loans, often at loan-to-value ratios below 10 per cent.“We partnered with SAF because we believe they are uniquely organized and staffed to capitalize on opportunities in Canadian credit markets, where borrowers face limited options outside of banks,” GQG Private Capital Solutions said in an e-mailed statement.The Canadian market remains attractive relative to the U.S., with private-credit deals generally yielding 100 to 200 basis points more than comparable transactions south of the border, Dunfield said. That gap reflects a less crowded lender universe and the fact that Canadian companies typically operate with more conservative leverage levels because the market relies more heavily on traditional bank funding, he said.Founded in 2014, SAF has generated structured returns above 16 per cent annually. The firm employs about 40 people across offices in Calgary, Toronto and Vancouver. “We want companies across the country to know: if you need capital, we’re here,” Dunfield said.Bloomberg.comPostmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.