CANADA/EUROPE - Major Canadian pension funds continue to invest in European real estate, despite the credit crunch, as consumer and investor confidence remains high, according to DTZ.
With nearly C$1trn (€670bn) in assets, Canadian pension funds are increasingly looking to Europe to satisfy their property requirements and generate higher risk-adjusted returns.
A report by real estate manager and consultancy DTZ suggests Canadian investors acquired more than C$10m in property abroad in 2007, and important deals took place in the UK, Germany, France and Russia, as well as the US and Australia, said Andrew Barnicke, senior vice president of DTZ.
"The share of foreign asset holdings by trusteed pension funds has increased by 9.3% since 2000," said Barnicke.
"Much of this spending is taking place in Europe, particularly London and we are beginning to see interest in emerging markets such as China and India," he added.
Twenty of the world's 300-largest pension plans originate from Canada, ranking it third in terms of numbers behind the United States (140) and the UK (29). Canada's two largest plans - Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board (CPPIB) - each have assets in excess of C$100bn and are far greater than the BT Pension Scheme, the biggest plan in the UK with assets under management of €53bn.
The report argued pension funds were investing at that time to tap strong consumer confidence resulting from steady job growth, low interest rates and a relatively healthy economy. This, together with Canada's abundant natural resources and move towards more self-sustaining, fully-funded pension funds, has made Canada an important exporter of real estate capital, according to DTZ.
Towards the end of 2007, property allocation reached a high of 7% of pension fund assets, although the majority of pension funds are aiming to increase their real estate holding value to equal between 10% and 15% of their investment portfolio.
An increase of real estate holdings to 12% could potentially lead to a $50bn inflow to property, a large part of which would be invested outside of Canada.
Major Canadian investors made significant fund commitments in 2007 to entities investing in Turkey, China, Brazil and Mexico, and made further commitments to Pan-European and Pan-Asian funds, suggests the firm's research.
Similarly, Canada Pension Plans Investment Board (CPPIB) recently opened offices in London and Hong Kong after acquiring $1bn in assets via funds and joint ventures in Asia and securing similar fund investments in Europe.
DTZ believes a small group of major investors are expected to provide the largest source of capital, although Canada's smaller funds and REITs are likely to follow, by teaming up to make key investments in Western Europe and seize opportunities in Eastern Europe, Asia and South America.
