Commercial real estate challenges forcing Canadian pension funds to re-evaluate strategy: report

Indeed, it said the Canada Pension Plan Investment Board lost five per cent on its property portfolio in its last fiscal year as the commercial real estate slump deepened, while the Public Sector Pension Investment Board lost 16 per cent — the worst fiscal year performance for those investments since the global financial crisis.

“What’s worked famously well for the last 35 years may not work so well for the next five to 10,” Jo Taylor, chief executive officer of the Ontario Teachers’ Pension Plan, told Bloomberg.

The Ontario Teachers’ has since shifted authority for most of its future real estate investments away from Cadillac Fairview and brought them in-house, just like the plan’s other asset classes, said the report. It also noted the Caisse de dépôt et placement du Québec lost 6.2 per cent on real estate in fiscal 2023, the worst return since the onset of the coronavirus pandemic. In January, the Caisse said it would combine that real estate business with another specializing in lending against properties, a merger that’s expected to save the plan $100 million annually.

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The move to more streamlined and centralized structures amounts to a blueprint for how some of the world’s most prolific property buyers think the game has changed, said Bloomberg, noting it’s also a recognition that the asset class has become more global and more niche, with tighter margins and stiffer competition from other types of investments.

“The real estate sector is changing dramatically,” Jim Clayton, a professor at Toronto’s York University, told Bloomberg. “At the same time, we now have this structural shift in the way we work and live which has sped up post-Covid. So I think you have people really re-thinking what real estate is.”

That’s leading to changes in how the Canadians funds invest, as well as what they bet on, the report said. However, the Ontario Municipal Employees Retirement System is staying the course in the sector, despite a negative 7.2 per cent return in the most recent reporting period, said Blake Hutcheson, the OMERS’ CEO, in the report. He added the investment organization already works closely with its real estate subsidiary for allocation decisions.

“We don’t give them money and say, ‘Go spend it.’ They go through the exact same process as our private equity business and the like. So the synergies that the others hope to achieve, we’ve been achieving for decades.”

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