Executives at British Columbia Investment Management Corp.'s real estate subsidiary, celebrating its first year in operation this month, have big plans to increase its foreign investments as well as its overall assets under management.
QuadReal Property Group, which now manages BCIMC's C$18 billion ($13.4 billion) real estate portfolio, will be shifting its holdings to an eventual 50-50 mix of Canadian and foreign real estate from the current 87% in Canadian property, said Jonathan Dubois-Phillips, co-president of QuadReal.
However, he added, QuadReal aims to reach that target without selling its C$16 billion in Canadian investments. Currently the firm manages C$2 billion in international real estate for clients of BCIMC, which manages C$123.5 billion for British Columbia's public pension plans and other provincial government agencies.
That means, at current value, QuadReal will look to add up to C$16 billion in foreign real estate investments, he said.
“First, we'll need to bring up our overall allocation to real estate,” Mr. Dubois-Phillips said, from the current 14% of BCIMC assets to a target range of 16% to 18% in seven years, depending on market conditions. That target is part of BCIMC's overall goal of reaching C$200 billion in total assets in seven years, assuming a 6.5% to 7% annualized rate of return over that time.
QuadReal was founded on June 1, 2016, to manage BCIMC's 14% real estate allocation. The real estate management subsidiary of BCIMC assumed management from three external managers — Bentall Kennedy, GWL Realty Advisors Inc. and Realstar Group.
QuadReal's other co-president, Remco Daal, had been president of Bentall Kennedy's Canadian operations, while Mr. Dubois-Phillips had been president of real estate boutique firm Winter Cove Investments. Mr. Daal oversees QuadReal's Canadian portfolio, while Mr. Dubois-Phillips supervises its international holdings.
The creation of QuadReal has “been a great move,” Mr. Dubois-Phillips said, with assets expected to increase 17% to C$21 billion by the end of this year. “It's great for our parent fund to control things in one place, it's great for governance and it's great to run as an independent entity.”
The benefits of operating as an independent subsidiary of BCIMC have been many, Mr. Dubois-Phillips said. “We're a subsidiary, but we have an independent board. That's a big distinction here,” he said. “The decisions we make are internal decisions. We can act independently.”
Also, without deferring to a third-party real estate investment manager to run the assets, “we're one step closer to the assets,” Mr. Dubois-Phillips said. “We now have one strategy that everyone buys into. And that has improved our governance.”
The transition to consolidated management from external firms is continuing, Mr. Dubois-Phillips said. The transfer of international real estate to internal management at QuadReal has been completed, as has the Canadian office-industrial and retail portfolio, while the transfer of Canadian residential investments should be completed by January.
So far, no official report of returns under QuadReal has been possible as the firm is changing reporting periods to calendar year-end from a fiscal year ended March 31 used by BCIMC, to align with other real estate investment managers. He said the subsidiary would release its first performance numbers in early 2018. He said preliminary data show “the portfolio returns are better in 2017, better than they were in 2016. International numbers have moved up slightly.”
BCIMC's latest annual report, for the 12 months ended March 31, 2016, showed its Canadian real estate investments returned 5.3%, the same as its custom benchmark, while foreign real estate returned 17.6%, well above its 7% custom benchmark. Those returns came three months before QuadReal was created.
QuadReal's decision to maintain its Canadian real estate investments speaks to the popularity of the market among global institutional investors, many of whom have targeted Canada for real estate investing, Mr. Dubois-Phillips said.
“It's an attractive market,” he said. “It's transparent, there's the rule of law, and it's a good proxy for the U.S. dollar. It's like Australia in that it's a small market, but a well-run market. Canada accounts for only 2% of global GDP, but 4% of the global real estate universe. But China has 15% of global GDP and only 5% of the global real estate market. Canada is popular because it's kind of a safe haven for institutional investors.”
Still, QuadReal is planning to broaden its global footprint with boots on the ground. Along with its Vancouver headquarters and offices in Calgary and Toronto, Mr. Dubois-Phillips said “the next phase” of the firm's expansion will be opening an international office, most likely in London, sometime after January 2018.