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Canada Pension lowers real estate exposure after offices take hit

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Canada Pension Plan Investment Board earned an 8% return in the fiscal year ended March, as double-digit gains in stocks, credit and private equity made up for weaker performance in emerging markets and real estate.

The fund recorded a 5% loss on its real estate holdings and blamed high interest rates and work-from-home trends that have damaged the value of office properties globally.

“Most of the losses were in the office sector, given the additional impact of changes in workplace trends,” it said in its annual report. The country’s largest pension manager again reduced its exposure to property to about 8% of total assets as of March 31, down from 9% a year earlier. Five years ago, it was 12%.

Canada’s biggest pension funds have been major owners of real estate, including prime office towers, for decades, but some are now adjusting their strategies. CPPIB has recently sold its interests in a pair of Vancouver towers, a business park in Southern California and a redevelopment project in Manhattan, with the latter offloaded for just $1 so the fund could shed its future obligations on the property.

Exposure to the office sector shrank to 6% of total real-asset holdings — which also includes infrastructure, renewable energy, power and utilities — from 9% the prior year.

Overall, CPPIB grew to $463 billion in assets from $417 billion a year earlier.

“The CPP Fund’s growth this year continued the trend of reaching heights several years ahead of initial actuarial projections,” Chief Executive John Graham said in a statement Wednesday. “Solid performance by all of the investment departments and key corporate functions helps demonstrate how our strategy is on track.”

The fund’s holdings of public stocks and private equity climbed 13.8% and 10.4%, respectively, while its credit portfolio gained 10.8%.

The Toronto-based pension fund has been active in dealmaking since the start of 2024. Earlier this month, it agreed to buy utility owner Allete for about $3.9 billion in partnership with Global Infrastructure Partners.

It also sold shares in the debut of cruise operator Viking Holdings and is among the investors seeking to raise around $1 billion for the initial public offering of health-care software company Waystar Holding, Bloomberg reported.

Investments in emerging public equities were impacted by losses in China, which “diverged from other major markets due to challenges in the real estate sector,” according to the annual report.

While CPPIB has mostly stuck to its China strategy, it eliminated about a dozen positions in its Greater China public equities team recently, representing close to 10% of its Hong Kong staff, according to a report by Bloomberg.

The pension plan reduced the number of its workforce in real assets and private equity by 7% and 13%, respectively, while expanding its credit investments team by 5%.

CPPIB is expected to reach $1 trillion in assets around 2030. Executives are expanding its private lending business, with with plans to nearly double the size of its credit holdings over the next five years.

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Layan Odeh, Bloomberg , 2024-05-22 18:27:18

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