CPPIB, Future Fund pump A$750m into Australia retail fund

The Canada Pension Plan Investment Board and Australia’s Future Fund have injected A$750 million (€524 million; $662 million) into an Australian retail fund in a bid to extend the life of the vehicle and replace original investors eyeing an exit.

The A$1.1 billion open unlisted fund, operated by Colonial First State Global Asset Management, has a finite life of around eight years. However, rather than winding down the fund at its expiration date when some existing investors wanted out, Colonial sought to recapitalise the portfolio with external equity.

Retail properties around the world are very highly valued and don't trade very often, so any time we get an opportunity, we certainly take a very serious look at it. CPPIB senior vice president of real estate investments Graeme Eadie

CPPIB and Future Fund have each invested A$375 million in the fund, called Direct Property Investment Fund (DPIF) Retail Sector, and will have some decision making rights, people familiar with the matter said. The remaining investors are reported to have invested an additional A$150 million of capital.

CPPIB senior vice president of real estate investments Graeme Eadie said in a statement the deal was a “key opportunity”, later telling the Canadian Press: “Retail properties around the world are very highly valued and don't trade very often, so any time we get an opportunity, we certainly take a very serious look at it.”

He added the portfolio, which includes nine regional and sub-regional shopping centres as well as central malls such as the Myer Centre in Adelaide, was not distressed. “These are very good assets and really the key is because they are so good and so hard to get hold of, people don't want to sell them,” he told the newspaper. Two of the assets are wholly owned by the fund, while the remaining seven are 50 percent interests.

The CPPIB/Future Fund deal is part of a growing trend among major institutional investors in taking greater control of new investments.

In May, the C$129.7 billion (€96.7 billion; $122.4 billion) CPPIB pension invested up to A$200 million in a second joint venture with Australia logistics developer and fund manager Goodman Group. That JV, known as the Goodman Australia Development Fund and seeded with an A$66.3 million, 76,000-square-metre distribution centre being developed by Goodman for US retailer Kmart, was created on an 80-20 basis.

Australia’s A68 billion sovereign wealth fund, Future Fund, has also increasingly turned to joint venture and club deal structures, where investors are given greater rights, reportedly investing alongside a handful of other large LPs in Brookfield Asset Management’s $5.5 billion club fund, the Brookfield Real Estate Turnaround Consortium.

In April, Future Fund revealed it had increased its exposure to global real estate to 4 percent of total assets as of 31 March, 2010, up from 1 percent a year ago.

Darren Steinberg, head of property at Colonial, said in the statement the DPIF Retail Sector recapitalisation provided an “exit strategy for those wishing to reallocate their capital was achieved by securing equity from new investors”.