Canadian pensions mull moves into Asia real estate
Ontario Teachers’ Pension Plan and the Healthcare of Ontario Pension Plan (Hoopp) do not hold Asian assets in their substantial property portfolios – but that could change as the two Canadian funds look to diversify their equity-heavy regional exposure.
“At the moment we are focused mainly on direct equity investment [in Asia], but we hope to introduce other asset classes,” said Ben Chan, Asia head of Ontario Teachers, Canada’s third biggest retirement fund, with C$194 billion ($149 billion) under management.
“We are mostly invested in private equity in Asia; we also have some infrastructure, but no real estate assets at present," he told AsianInvestor. "But that doesn’t mean we’re not looking.”
Chan, who heads a 25-strong office in Hong Kong, declined to comment on the type or location of real estate it would consider, or any time frame.
All of Ontario Teachers’ property investment is done by one of its independent wholly-owned subsidiaries, Cadillac Fairview, which invests in, develops and operates real estate assets. The Toronto-based company holds C$29 billion of property in North and South America, but is “always evaluating new markets as circumstances evolve”, according to its website.
Similarly, Hoopp is unlikely to allocate to Asian property "for a while", chief investment officer Jeff Wendling told AsianInvestor, but real estate is likely to be its next new asset class in the region.
The C$77.8 billion fund would likely make its first such allocations initially via external managers, he said, through either closed- or open-ended vehicles. At least 80% of the pension's property investments are made directly, and 20% or less through funds, noted Wendling. But the further it goes from its home market, the more it uses asset managers.
For now, Wendling has some concerns about the relatively high valuations of both real estate and private equity assets, especially given the large amount of capital that has been raised in the past year or two to deploy in those areas.
Ontario Teachers has C$29 billion in real estate holdings, mostly in North America – a larger allocation than that of other international asset owners.
Ontario Teachers has 9% of its total assets under management invested in Asia Pacific (7% in Asia and 2% in Australia and New Zealand), and this exposure will rise, Chan noted. The Asia AUM will rise steadily over the next five to 10 years in tandem with the region’s contribution to global growth and driven by opportunities and partnerships in the region, he added.
RISING APPETITE
Other Canadian pensions are also looking to move into Asian property or have made recent moves to build their exposure to the asset class.
One mid-sized Canadian pension fund is looking at making its first allocation through a pan-Asian open-ended core real estate fund, said Michael Peck, Canada head of institutional at Invesco, declining to name the institution.
Moreover, the Asia head of business development at a big alternatives investment firm confirmed that she too had been speaking to a Canadian fund about such an allocation.
Meanwhile, Ontario Municipal Employees Retirement System (Omers) closed its first direct real estate investment in Asia in fiscal year 2017 by participating in the privatisation of Global Logistics Properties, a Singapore-based warehouse operator and real estate fund manager.
And Canada Pension Plan Investment Board said in August it had injected another $1.4 billion into its China logistics investment partnership with Australia’s Goodman Group (alongside $350 million from Goodman), bringing the total commitment up to $5 billion.
Such moves reflects rising demand for Asian property among international asset owners in general. The region’s real estate market has matured to the extent that it is now increasingly seen as a core rather than opportunistic part of global property portfolios.
To cater for this growth in appetite, new open-ended funds are being readied by US asset managers Nuveen and PGIM. That said, Asia’s property market remains less liquid than those in Europe or the US.