AGF Management Ltd. AGF-B-T is expanding its alternative asset business by acquiring a 51-per-cent stake in private equity fund manager Kensington Capital Partners for $45-million.
Toronto-based AGF announced Monday that it will double the size of its private capital division by acquiring control of Kensington, an employee-owned company with $2.6-billion of funds that invest in venture capital and small to mid-sized businesses. AGF oversees $41.8-billion of client assets, mainly in mutual funds.
AGF, founded in 1957, began offering clients alternative assets such as infrastructure funds 10 years ago. Two years ago, the company hired Brookfield Asset Management Ltd. BAM-T veteran Ash Lawrence as the head of its private capital team, with a mandate to expand the business by acquiring fund managers.
“Partnering with Kensington achieves two goals for AGF,” said Mr. Lawrence in an interview. ”It diversifies AGF, with a second pillar alongside our traditional asset management business and gives our existing distribution channels access to a proven private equity manager.”
Kensington chair and founder Tom Kennedy said his firm decided to sell a control stake to AGF to expand the asset manager’s distribution network and raise capital for new private equity funds.
“AGF brings strong clients relationships across North America, and gives us distribution we lacked outside Canada,” he said. A former investment banker, Mr. Kennedy has relationships with AGF that date back 40 years: ”We’ve always admired AGF’s approach to investing.”
AGF plans to continue building its alternative asset platform, with a focus on sectors such as private credit and liquid alternative funds, which are meant to give individual investors access to the hedge fund strategies that historically were only available to institutions.
In 2014, AGF struck a partnership with Calgary-based fund manager SAF Group to market the latter’s private credit products. SAF Group oversees approximately $4-billion.
Kensington’s flagship product is a $1.7-billion private equity fund. Over the past decade, the fund returned 12.3 per cent annually, compared with a 7.6-per-cent return from the benchmark S&P/TSX index. Kensington’s fund is open ended: Investors can withdraw money at any time. Most private equity funds only allow redemptions after seven years or more.
Kensington will retain its name and employees will continue to own the remaining 49 per cent of the firm. Three AGF executives – Mr. Lawrence, president Judy Goldring and chief financial officer Ken Tsang, will join the company’s board.
Founded in 1996, Kensington has offices in Toronto, Vancouver and Calgary. Its three senior executives – Mr. Kennedy, chief investment officer Eamonn McConnell and venture capital head Rich Nathan – are all continuing in their roles.
Kensington also manages a $101-million venture capital fund, the B.C. Tech Fund, launched by the British Columbia government in 2016.
The asset management industry has been consolidating around its largest players for the past two decades, in part because of the rising cost of distribution and compliance. In a recent report, Deloitte said traditional asset managers – such as AFG – are increasingly targeting alternative asset managers.
“Strong investor demand and higher expected returns make alternatives an attractive option in an environment of low management fees, low interest rates, and increasing competition,” said Kendra Thompson and Lisa Weatherbed, partners at the consulting firm.