“When founders are choosing who to partner with – founders, owners, management teams – the fact that we live and die by our reputation is actually very important to them," said Paul Desmarais III, senior vice-president of Power Corp., as well as executive chairman of Sagard Holdings.Christinne Muschi/The Globe and Mail
Power Corp. of Canada is courting new investors with the launch of a private-debt fund that will rely on the company's web of relationships.
After more than a decade of equity and debt investing in North American middle-market companies, Power's investment platform Sagard Holdings is targeting at least $500-million (U.S.) from investors for Sagard Credit Partners LP. The fund has already secured just more than half that amount from its own capital and backers such as the Healthcare of Ontario Pension Plan (HOOPP) and some Montreal-based investors.
The Sagard Credit fund will focus on lending to family- and founder-owned businesses and some smaller public companies. It's an approach built on sourcing deals through the broader Sagard network, which also has arms in Europe and China, as well as through its Power parent – a conglomerate controlled by the Desmarais family.
"When founders are choosing who to partner with – founders, owners, management teams – the fact that we live and die by our reputation is actually very important to them. And they know we're in the business of forming repeat relationships," said Paul Desmarais III, senior vice-president of Power Corp., as well as executive chairman of Sagard Holdings.
This initiative comes at a time when fundraising in the private-debt space is reaching new peaks as more institutional investors turn to alternative assets in search of higher returns. New regulations and capital requirements foisted on large banks in the wake of the financial crisis have dramatically altered the lending landscape, making room for new entrants.
Private-debt funds raised a record $107-billion in 136 funds in 2017, according to alternative asset data provider Preqin, which also noted a multitude of new funds have sprung up, targeting specific geographies or markets. At the start of this year, there were 336 private debt funds trying to raise $159-billion globally.
Canadian firms of all sizes have flocked to the opportunities in direct lending and other pockets of the credit markets. Companies such as Onex Corp., Brookfield Asset Management Inc. and Sun Life Financial Inc. are providing other investors with access to private credit funds and co-investments. Smaller asset managers across the country have also carved out niche private-debt strategies, or launched new funds.
"A lot of the competition we've seen that's come to market in the last few years has really been focued on the sponsor-backed market," said Adam Vigna, chief investment officer of Sagard Holdings, referring to credit investors entering deals alongside existing private-equity players. By contrast, Sagard plans to act as a direct partner to entrepreneurs and management, said Mr. Vigna, who joined Sagard in 2016 after running a $20-billion (Canadian) global private credit group at the Canada Pension Plan Investment Board.
This relationship-focused strategy is also playing out in the fund's initial investment base. HOOPP has worked with Sagard before, acting as its main lender in the private-equity takeover of Performance Sports Group alongside Fairfax Financial Holdings Ltd. last year.
"Having worked with them in the past, we believe that the combination of the [Sagard Credit Partners] team and strategy with the Sagard/Power Corporation network is compelling," said Jim Walker, managing partner at HOOPP Capital Partners.
Mr. Desmarais said he can envision the credit business growing through subsequent fund launches. Funds that tap into Sagard's other public- and private-equity groups could follow. But right now, Mr. Desmarais said that North American middle-market equity investments look "quite expensive."
"Deploying capital into something that gives you a very attractive, risk-adjusted net 10- to 12-per-cent return is more attractive, in my mind, than trying to play peak valuations in public-equity markets, or highly competitive private-equity spaces," he said.
Sagard Credit Partners will pursue senior secured loans between $10-million and $100-million. The new fund has already begun deal hunting, and looked at 225 deals in the past year. Its first investment closed last spring, providing a $42-million (U.S.) credit facility to Calgary-based Founders Advantage Capital Corp.