Several Canadian public pension funds in recent months have made large investments in commercial real estate outside of the country, either directly or through co-investments.
The deals, involving plans including the C$192.8 billion (US$181.8 billion) Canada Pension Plan Investment Board, Toronto, and the C$189.5 billion Caisse de Depot et Placement du Quebec, Montreal, highlight the different philosophy Canadian plans use in real estate investing, choosing more direct methods over hiring external managers.
Among deals made by the Canadian plans in the second half of 2013:
- CPPIB and DEXUS Property Group's joint A$3 billion (US$2.7 billion) deal to acquire Commonwealth Property Office Fund, a portfolio of Australian office properties, which was accepted by the Australian REIT's board on Dec. 18;
- The acquisition of two office buildings in Chicago's West Loop neighborhood for US$360 million by Ivanhoe Cambridge Inc., the real estate investment arm of the Caisse, announced in November;
- A 50%-50% co-investment between CPPIB and Hermes Real Estate Investment Management Ltd., valued at £100 million (US$163 million), in London office building Aldgate, announced in October; and
- CPPIB's US$480 million equity deal to acquire a 27% stake in Aliansce Shopping Centers SA in Brazil from General Growth Properties Inc., announced in late July.
“We work differently” than U.S. public pension funds, said Bill Tresham, president of global investments at Ivanhoe Cambridge in Montreal, which manages C$40 billion in real estate assets on behalf of the Caisse. At Ivanhoe Cambridge, Mr. Tresham said, 50% of its investments are direct, with another 40% done through co-investments with other investors, including real estate managers or other pension funds. Only 10% of assets are invested in discretionary funds.
While Canadian plans chart a more direct course on real estate investments, U.S. pension plan executives likely will continue to use external managers, although some direct investments could be considered, said Mark Marasciullo, New York-based managing director, national investor services, at Jones Lang LaSalle Inc.
“Canadian plans — more so than most — do direct investing,” Mr. Marasciullo said. “In the U.S., I think they'll continue to employ managers and look at direct investments as well. The question is, (U.S. pension funds) might not be staffed to do so.”
Mr. Tresham said Ivanhoe Cambridge has a total of 1,000 employees managing property investing and the assets themselves. In comparison, there are 65 positions in the $277.3 billion California Public Employees' Retirement System's real assets unit, which oversees investment of the Sacramento-based system's $20.2 billion real estate portfolio, and 18 staff members in the real estate investment office at the $175.9 billion California State Teachers' Retirement System, West Sacramento, which oversees $21.9 billion. There are no property management employees at either California pension fund, spokesmen there said.