Sun Life Global investments (Canada) Inc., the fast-growing wealth-management arm of Toronto-based insurance giant Sun Life Financial Inc., has purchased Mississauga, Ont.-based Excel Funds Management Inc. The deal will enrich Sun Life Global Investment's (GI) product line and add distribution and enhance growth for the parent firm.
The deal is expected to be approved by regulators, shareholders and Excel funds' unitholders and close by yearend. Financial terms of the transaction were not disclosed.
"The purchase [of Excel] represents an entryway to the important asset class of emerging markets," says Rick Headrick, president of Sun Life GI. "The advantage of the transaction is that Excel is an established [investment] fund company with a long track record, beginning with Excel India Fund. [Excel] has a terrific lineup, and we consider the firm a leader in the emerging markets asset class."
Sun Life GI was launched in 2010 as a diversification move to augment the parent's mainstay insurance business. The company grew rapidly, having reached $18 billion in assets under management (AUM).
Excel, an entrepreneurial investment firm specializing in emerging markets, was launched almost 20 years ago, in April 1998. The acquisition by Sun Life GI comes at a time when emerging markets such as India, China and Latin America are accelerating economically and gaining a bigger share of the global investment pie.
For Excel, which has $700 million in AUM, including 10 mutual funds and two ETFs, the new parent brings the reinforcement of Sun Life Financial's substantial financial resources and the addition of Excel's strong distribution network of some 3,300 financial advisors to take Sun Life to its next level of asset growth.
Whether the Excel funds will continue to keep that brand name is too soon to say, Headrick says, but Excel's strong network of relationships with advisors who are not part of the Sun Life Financial (Canada) Inc. advisor network is among the benefits of the Excel brand. "There's an opportunity to introduce the rest of the Sun Life [GI] product line to these advisors," Headrick says.
Sun Life GI has experienced a growing appetite for managed investment products in its product lineup, and there's potential for Excel funds to play a part in these fund-of-funds portfolios. The deal also brings two globally oriented ETFs into the Sun Life GI fold, providing an entry to the fast-growing ETF market.
Following completion of the transaction, Bhim Asdhir, Excel's president and CEO, will join Sun Life's leadership team as a member of the integration planning committee and will continue as the senior relationship manager for the funds' portfolio subadvisors and the distribution network.
For Asdhir, Sun Life GI is an appealing partner. A connection between the two firms has already been in place for 10 years. Excel's largest fund, the $317-million Excel India Fund, is subadvised by Birla Sun Life Asset Management Co. Ltd. of Mumbai, a joint venture of Sun Life GI and Aditya Birla Group.
"For Bhim Asdhir to monetize his investment in the company that he founded in the late 1990s, and also to continue in an executive role with a deep-pocketed owner that's supportive of emerging-markets investing and with which Excel has a had a long-standing corporate connection, makes sense," says Rudy Luukko, editor of investment and personal finance at Morningstar Canada in Toronto.
The investment funds industry currently has $20 billion in AUM held in Canada-based mutual funds specializing in emerging markets, Asdhir says, but that's still a tiny share of the $1.4 trillion held in Canadian mutual funds overall, as measured by the Investment Funds Institute of Canada.
However, over the next five years, Excel's internal projections forecast that Canada-based emerging-markets products will blossom to $100 billion in AUM.
"Canadian retail emerging-market assets are less than 2% of retail mutual funds. But in terms of global market capitalization, emerging markets account for more than 35%," Asdhir says. "Institutional investors have 10%-15% of their portfolios [invested] in emerging markets, and retail usually follows the lead of institutions. We see people opening up more and more to emerging markets."
Asdhir adds that Excel's funds will benefit from the increased distribution that Sun Life Financial (Canada)'s expansive advisor network provides. Although Excel is financially strong and performance has been good, the industry is becoming increasingly competitive and the merger will create economies of scale.
"Partnering with Sun Life is the next logical step in the evolution of Excel's growth," Asdhir says. "Rather than going it alone, we will benefit by partnering with a large, well-respected firm with deep financial resources and expertise in global markets. We bring to the table our employees, our funds, our advisor relationships and our subadvisors. That's a win/win situation when one plus one equals eleven."
Sadiq Adatia, chief investment officer with Sun Life GI, is optimistic about the growth potential of emerging markets and foresees this asset class comprising a larger share of diversified portfolios.
"We're seeing the world shift to emerging markets," Adatia says. "The pace of economic growth and demographic trends favour emerging markets."
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