Power Corp. of Canada’s POW-T alternative-investment arm Sagard Holdings is launching its first private credit fund for retail investors at a time when some private credit funds are struggling with elevated redemption requests and major defaults on the loans they provide.
Sagard plans to announce the launch Thursday and will sell the fund exclusively through financial advisers to accredited retail investors in a partnership with iCapital – a financial technology platform that provides advisers access to private and alternative investments.
While the new fund is the first retail private credit fund under the Sagard brand, last year the company partnered with online financial services provider Wealthsimple to subadvise on a retail private credit fund. That fund – the Wealthsimple Private Credit fund – now has more than $200-million in assets and will continue to operate independently under the Wealthsimple banner with Sagard as a subadviser. Subadvisers are third-party money managers hired by mutual fund companies to manage an investment portfolio.
Private credit is a type of debt provided by non-bank lenders to businesses seeking to raise capital. It refers to loans that are made directly by investors to companies. Investors are attracted to private markets as they look to access higher rates of return, but the asset class comes with higher risk and often locks in funds for longer time horizons.
Sagard managing partner and chief investment office Adam Vigna – who is the former global head of principal credit for the Canada Pension Plan – said the two funds won’t be in direct competition because Wealthsimple’s clients are a different target market than the adviser channel clients Sagard will be selling through.
In addition to Wealthsimple, Sagard has also been managing private credit assets for institutional investors for more than eight years with an investment team that has worked together in private credit for the past 20 years. The global asset manager manages more than US$25-billion in assets.
“Most of the big pension plans in Canada have been investors in Sagard’s private credit product and when you look back over the last 20 years, our team has had a very, successful track record managing capital for those institutions,” Mr. Vigna said in an interview. “We’ve continued to deliver outsized returns for those different institutions and that’s why we’ve seen so much institutional capital come into this space.”
Sagard chairman and chief executive Paul Desmarais III said that over the past eight years the private credit team has served public and corporate pension plans, financial institutions, sovereign wealth funds and wealthy families.
The new retail fund is aimed at accredited investors – high-net-worth individuals who typically have financial assets of at least a million dollars.
“We believe in democratizing access to alternatives,” Mr. Desmarais said in a statement. “We are now going to offer these capabilities to a much broader category of accredited investors. Until recently, this kind of access has not been possible. We are starting with private credit in Canada, and the plan is to go far beyond that.”
Sagard’s entrance into the retail space for private credit follows a tumultuous time for several private debt funds that found themselves in trouble after rising interest rates sparked a flurry of redemption requests from investors. Companies such as Ninepoint Partners LP and Romspen Investment Corp. have had to halt paying out any cash distributions to investors as well as shut down redemption windows for many of its funds.
However, Mr. Vigna says “not all private credit is created equal.”
“What we do at Sagard is completely different from the strategy employed by some of these other firms in the Canadian market,” he said. “I think that is fundamentally important to recognize.”
Mr. Vigna says Sagard is focused on middle-market companies in North America that have profit under $50-million – a market, he adds, that historically has been underserved and continues to be underserved, particularly in the United States.
“We’ve seen a lot of the regional banks and commercial banks pull back from the market in the U.S. so there’s a lot of really attractive opportunities to place capital to work in the private credit landscape based on the strategy that we’re focusing on today,” he added.
The retail fund will invest in the same private deals as Sagard’s institutional clients, which are composed mainly of private loans originated by Sagard and other liquid credit securities.
Sagard says it plans to launch additional retail products in the coming months. The fund will provide loans to companies, receive interest on those loans and distribute net proceeds to investors in monthly distributions, initially targeting an estimated annual net return between 9 and 10 per cent, and offer quarterly redemption periods.