Canada’s 10 largest pension funds are far more heavily invested in alternative-asset classes such as real estate, infrastructure and private equity than smaller domestic peers and that strategy has paid off.
The top 10 class of pension giants has seen its assets under management triple since 2003 and has generated $600 billion in net investment returns from 2003 to 2014. Eighty per cent of the increase in value was driven by investment returns, according to the study by Boston Consulting Group.
While investments have driven returns in today’s low interest rate environment, the Canadian pension giants have also been able to keep a lid on costs by managing a large proportion of assets internally “which is generally much more cost-effective than externally,” Boston Consulting concluded in its report.
In fact, about 75 per cent of the big 10’s assets are managed internally as the funds “developed in-house expertise to invest in less liquid asset classes.”
Of the top 30 global real estate investors among pension funds, five are Canadian funds (all dollar values are Canadian funds):
* The Caisse de dépôt et placement du Québec ($35.3 billion real estate net assets under management);
* The Canada Pension Plan Investment Board ($31.2 billion);
* The Ontario Municipal Employees Retirement System (OMERS) ($23.9 billion);
* The Ontario Teachers’ Pension Plan Board ($23.7 billion);
* and The British Columbia Investment Management Corporation ($20.4. billion).
Big and different
The consulting firm found each fund’s strategy is designed to meet its unique mandate but that all 10 seek to build well-diversified portfolios that align with their relatively long-term payout profiles.
Given their heft, they have been able to invest 32 per cent of their investments in alternative-asset classes including real estate.
By comparison, most other Canadian pension plans carry an 11% allocation in alternative-asset classes while retail investors hold about five per cent alternative investments in their portfolio, a concentration which gives the biggest funds “greater diversification and alignment with long-term payout profile” than other investors.
“The Top Ten have shown impressive growth in investment capabilities and scale to manage the realities of a post-financial crisis world,” said Craig Hapelt, a Toronto-based partner at BCG.
“Not only do the funds represent an important aspect of Canada’s retirement income landscape, but their investments also have a broader positive impact on Canada’s prosperity.”
What they own
The big 10’s holdings include the likes of real estate operators and developers such as:
* the Caisse-owned Ivanhoé Cambridge – “high-quality properties and companies in select cities globally, portfolio valued at (more than) $48 billion”;
* and Teachers’-owned Cadillac Fairview – “owns and manages some of Canada’s landmark office and shopping centre developments with a portfolio valued at (more than) $22 billion.”
* OMERS-owned Oxford Properties Group – “$20B Cdn in assets under management and 50 million square feet of Canada’s best office, retail, multi-residential, industrial and hotel real estate”;
As well, the big funds own companies and properties such as:
* North American seniors housing giant Revera (PSP Investments);
* the Caisse’s Brazilian retail joint venture Ancar Ivanhoe Shopping Centers;
* and The Healthcare of Ontario Pension Plan’s Brentwood Town Centre in Burnaby, a mixed-use transit development with 1.1 million sq. ft. of retail space and 1,200 residential units in two 57 storey towers.
Big 10 money
The report also found the big 10 comprise “a significant component of Canada’s retirement income system, helping to provide financial security in retirement to over 18 million Canadians.”
The big funds have invested approximately $600 billion across various asset classes in Canada and directly employ almost 11,000 professionals.
As well, Boston Consulting concluded the big pension funds are “responsible for creating talent clusters in multiple Canadian cities – attracting Canadian talent currently working abroad or providing home-based talent with opportunities to gain global experience.”
Holdings of the big 10 are as follows:
* The Canada Pension Plan Investment Board ($265 billion);
* The Caisse de dépôt et placement du Québec ($192 billion);
* The Ontario Teachers’ Pension Plan Board ($154 billion);
* PSP Investments ($112 billion);
* The British Columbia Investment Management Corporation ($104 billion);
* The Ontario Municipal Employees Retirement System ($73 billion);
* The Healthcare of Ontario Pension Plan ($61 billion);
* The Alberta Investment Management Corp. ($50 billion);
* The Ontario Pension Board ($22 billion);
* and the OPSEU Pension Trust ($18 billion).
Image above compiled from the Boston Consulting Group report.