Manulife Financial Corp. MFC-T is pushing deeper into the fast-growing private credit market and expanding its direct lending to mid-sized companies as part of the insurer’s plan to build up its alternative asset management business.
Manulife announced Wednesday that it is buying a 75-per-cent stake in Florida-based private credit manager Comvest Credit Partners for US$937.5-million.
Comvest has US$14-billion of assets, having grown its flagship credit fund eightfold over the past decade. Manulife has an option to buy the remainder of the business in six years. And if Comvest meets certain performance targets, its existing owners are in line to receive earnout payments of up to US$337.5-million.
When combined with Manulife’s existing US$3.7-billion private credit business, which mostly makes private-equity-backed loans, Manulife will manage US$18.4-billion of private loans. Nearly half of Comvest’s loans are made directly to companies, giving Manulife a more well-rounded suite of credit products to offer to outside investors.
“This deal immediately scales our private credit capabilities,” Paul Lorentz, chief executive officer of Manulife’s wealth and asset management business, said on a Thursday conference call.
Last year, Manulife highlighted a plan to speed up its expansion into private markets within its global wealth and asset management business. With the Comvest deal, Manulife’s private markets platform now manages nearly US$100-billion in assets.
Demand for private credit has exploded in recent years and Manulife has an extensive distribution network to sell products to about 19 million clients through retail, retirement and institutional channels.
“We had identified private markets as a sweet spot within global wealth and asset management,” Manulife CEO Phil Witherington said. “And then within private markets, private credit is a fast-growing and in high demand strategy from our clients.”
Manulife reported higher second-quarter profit on Thursday, driven by a 13-per-cent increase in core earnings from its Asia business. Total profit was $1.79-billion, or 98 cents per share, in the three months ended June 30. A year ago, profit was $1.04-billion, or 52 cents per share.
The burgeoning private credit industry has been converging with large insurers and wealth managers, which have large pools of cash searching for investment returns and long-term liabilities to clients.
Asset managers with large private credit businesses such as Brookfield Asset Management Ltd. and Apollo Global Management Inc. have been buying insurers that sell retirement annuities and pension risk transfer products. They then invest a portion of those insurers’ liabilities in credit and other alternative assets.
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Financial services analysts questioned whether Manulife might be overpaying to acquire Comvest, at a valuation of about 8 per cent of the private credit manager’s assets under management.
That valuation “is very high compared to traditional asset managers, as well as to alternative ones,” National Bank Financial Markets analyst Gabriel Dechaine said in a note to clients.
“However, it is consistent with the valuation of several deals that have taken place over the past years.”
Desjardins analyst Doug Young also said the valuation “looks rich” and challenged Manulife executives on Thursday’s conference call to defend the purchase price.
Mr. Lorentz responded that it “really speaks to the future value we expect to create from this and the alignment of interest.”
Mr. Witherington urged analysts to look past the boost to profits earnings in the first year “to see the financial significance of this one. I think it’s highly relevant to global wealth and asset management’s future performance,” he said.
The deal is expected to close in the fourth quarter this year, subject to closing conditions and approvals.
Morgan Stanley & Co. LLC advised Manulife on the transaction and Skadden, Arps, Slate, Meagher & Flom LLP gave legal advice.