Large Canadian pension funds are known to invest heavily in real assets, which include real estate, infrastructure and land. In this paper, we take the analysis down to the asset level and study how these funds create value and manage risks in the private real estate market.
- We show that large Canadian pension funds are uniquely active in the market of direct real estate investments. Even though they manage just 6 per cent of global pension assets in our data, these funds are responsible for 60 per cent of the total value of direct real estate deals involving a pension fund.
- Their portfolio strategy combines global asset diversification with a local impact strategy that consists of internally developing and greening urban properties. As an example, the map below shows that the area located inside and surrounding the financial district of Toronto (in red) is owned and greened (based on LEED certification) almost exclusively by the top nine Canadian pension funds.
- Using a common benchmarking methodology across funds, we show that this strategy delivers superior performance net of fees while contributing to the green development of major city centres. On average, large Canadian pension funds that directly manage more than 50 per cent of their real estate AUM generated a net value added of 148 basis points between 2005 and 2019.