Alternative asset manager Sagard Holdings Inc. is bringing on Bank of Montreal BMO-T and Abu Dhabi-based sovereign wealth fund ADQ as equity partners in a move to raise new funds to fuel its expansion plans in a tough environment for investing and fundraising.
ADQ and BMO are taking minority stakes in Sagard, controlled by the Desmarais family, and Great-West Lifeco Inc., GWO-T another company in the family’s Power Corp. of Canada POW-T group, is increasing the size of its existing minority stake, which the life insurer acquired in 2021.
Terms of the deal were not disclosed, but the three partner organizations are collectively injecting more than US$100-million into Sagard, and have committed to provide up to US$2-billion of capital to invest through Sagard over the next five years, according to two people with knowledge of the transaction.
After the transaction closes, ADQ and Great-West will hold roughly equal stakes, while BMO will be a smaller shareholder. Power Corp., which controls Sagard and Great-West, will continue to have majority control.
The Globe and Mail is not identifying the sources because they are not authorized to discuss terms of the deal.
Sagard manages about $14.5-billion in assets, and has been building its investment presence across several alternative asset classes, including venture capital, private equity, private credit and health care royalties, for several years.
In the coming years, Sagard is looking to expand further, which could include launching new investment strategies and products, as well as making acquisitions. Until now, about half of the growth in assets Sagard manages has happened internally, and the other half through mergers. The company plans to maintain that balance in future.
“These partnerships are just a continuation of that growth,” said Paul Desmarais III, Sagard’s chairman and chief executive officer, in an interview. “This marks a really important moment in our firm.”
The decision to sell stakes to BMO and ADQ, and to increase Great-West’s ownership, are an indication of the industry trends that Sagard is preparing to tap into over the coming years, Mr. Desmarais said. By drawing Great-West closer, Sagard is positioning itself for the growing investments insurance companies are making in alternative assets.
BMO provides a distribution channel through a major bank at a time when asset managers around the world want make their products available to a broader swath of retail investors.
ADQ is one of a number of Middle Eastern sovereign wealth funds that are still investing large sums of money as other major institutional investors such as pension funds are pulling back on commitments, squeezed by shifts in the market and rising interest rates. Executives from Sagard first made contact with ADQ at an event in Berlin.
“Sagard’s entrepreneurial ability to mobilize investment talent, launch new differentiated strategies and deliver concrete results has attracted us to partner with them,” said Murtaza Hussain, chief investment officer, M&A and alternative investments at ADQ, in a statement.
Some of the asset classes in which Sagard invests are going through a rough patch, including venture-capital backed technology companies with falling valuations and private equity firms struggling with a slowdown in deal making. Others, such as private credit, are expected to boom over the coming years as banks pull back on lending and higher interest rates make private loans more lucrative for other lenders.
Even in “a very difficult fundraising environment,” Sagard has still been able to raise money, Mr. Desmarais said. Three of Sagard’s funds have closed fundraising rounds and were oversubscribed this year, he said.
Even so, sovereign wealth funds such as ADQ are “very actively allocating” money to asset managers, he said. “By forming a partnership with one of these large funds, I think it positions us very well to expand our fundraising and engagement in the Middle East.”
The deal is expected to close in the third quarter of this year, subject to regulatory approvals.