A large Canadian pension fund with billions of dollars in assets under management posted positive returns last year, and not thanks to its real estate holdings.
According to Bloomberg, the Public Pension Investment Board, also known as PSP Investments, reported a minus 16 percent return on real estate for the fiscal year that ended March 31. Office properties have been the pension fund's real estate nemesis, with rising interest rates and falling occupancy rates forcing PSP to cut prices.
Of the seven major asset classes, real estate was the only one to post a negative return for PSP's most recent fiscal year, and it also posted the lowest five-year annualized return.
“We have an opportunity to review our performance and apply lessons learned so we can be more focused and disciplined going forward,” Deborah Olida, CEO of PSP Investments, said in an interview. In the two years since Ms. Olida took over, PSP has appointed an executive to lead its real estate investments and launched a review of its strategy and partners.
Recently, the fund has reduced its overall exposure to the office market, dropping it to 22% of its real estate portfolio, down from 25% a year ago. PSP has shifted its focus to the multifamily, logistics and student housing sectors. Shortly after the pandemic began, PSP agreed to invest in a $700 million rental housing business through a partnership with Pretium Partners.
Bonds and public markets are the primary asset allocations in PSP's portfolio, with real estate making up just 10% of the portfolio.
Pension funds like PSP are vital to financing real estate projects around the world, so any changes to their real estate portfolios have major implications.
PSP's recent property sales also include an industrial portfolio in Mexico. The pension fund remains involved in the Hangar District, a redevelopment near Toronto's former airport site that will bring about 3,000 housing units, including rental and affordable housing.
— Holden Walter Warner
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