Canada Pension Lowers Real Estate Exposure After Offices Take Hit

Canada’s biggest pension fund is dialing down its office holdings, pivoting towards equities and credit for future growth.
May 23, 2024
buildings of downtown canada
  • CPPIB reduced its real estate exposure to 8% due to global office property challenges.
  • Gains in equities and credit offset real estate losses, pushing the pension fund up to C$632B in assets.
  • CPPIB is committed to expanding its private lending and credit business lines and aims to reach C$1T in AUM by 2030.
Key Takeaways

The Canada Pension Plan Investment Board (CPPIB) is slowly moving away from real estate to embrace more private equity and credit investments, according to Bloomberg.

Distressing State of Real Estate

The Canada Pension Plan Investment Board (CPPIB) reported an 8% return, driven by gains in equities, credit, and private equity, which offset losses in real estate and emerging markets. CPPIB’s real estate holdings suffered a 5% loss attributed to rising interest rates and the work-from-home trend, particularly affecting office properties.

As a result, CPPIB has reduced its real estate exposure to about 8% of total assets, down from 9% last year and 12% five years ago. Its office exposure, in particular, is now just 6%. Recent divestments included Vancouver office towers, a business park in Southern California, and a Manhattan project sold for just $1 to shed future obligations. 

Strong Gains in Equities, Credit

The pension fund also reduced its private equity workforce while bolstering the credit investments team. Holdings in public stocks and private equity rose by 13.8% and 10.4%, respectively, while the fund’s credit portfolio gained 10.8%. 

These returns were in line with CPPIB’s broader strategy and helped push the fund from C$570B last year to C$632B in assets today.

Notable deals included acquiring utility owner Allete Inc. and other lucrative investments in emerging public equities despite challenges in China’s real estate sector. CPPIB plans to expand its private lending business and double credit holdings in the next five years, targeting assets of C$1T by 2030.

Survival of The Fittest

CPPIB’s latest move exemplifies a broader trend among pension funds shifting away from traditional real estate investments like prime office towers. 

With a proactive approach to future growth, CPPIB is focused on diversifying and expanding its credit holdings, diversifying into utility ownership, and even healthcare software.

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