Canada’s pension plans acquired $10bn of foreign property in 2007

Canada’s retirement system is fuelling property investment abroad despite the credit crunch, with lowly-geared pension funds looking to pick up bargains in Europe, according to a report.

Canadian investors acquired more than $10 billion (€7.3 billion) in property outside Canada last year, with significant transactions in the UK, Germany, France and Russia, as well as the US and Australia, according to research by global real estate advisers DTZ.

With almost $1 trillion in total assets, the growth of domestic pension funds has resulted in increased purchasing activity by Canadian investors, said the firm. It said there was a clear trend towards increasing investment abroad to satisfy their direct property requirements and to generate higher risk-adjusted returns.

Andrew Barnicke, senior vice president at DTZ Barnicke said in a statement: “The share of foreign asset holdings by trusted pension funds has increased 9.3 percent since 2000. Much of this spending is taking place in Europe, particularly London and we are beginning to see interest in emerging markets such as China and India.”

Of the world’s 300 largest pension plans, 20 originate from Canada ranking the country third behind the US with 140 and the UK with 29. In all, Canada’s various pension funds together control roughly $1 trillion in invested assets. Their property allocation reached a high at the end of 2007, touching seven percent. But most pension funds are aiming to increase their real state holdings to as much as 15 percent of their investment portfolio, DTZ said.

A five percent increase of real estate holdings to 12 percent of current assets would potentially correspond to a further inflow to property of nearly $50 billion, of which a significant part would be invested outside of Canada.

Last year, major Canadian investors made significant fund commitments to entities investing specifically in Turkey, China, Brazil, Mexico, as well as into pan-European and pan-Asian funds. For example, CPPIB has recently opened offices in both London and Hong Kong, having acquired more than $1 billion in Asia via funds and joint ventures and has completed a wide range of similar fund investments in Europe.

According to Real Capital Analytics, cross border investment into Canada represented 23 percent of total real estate investment volume in 2007.