Investors

Plummeting RE returns add to Canadian pension fund woes

Canada’s Caisse de depot et placement du Quebec suffered large falls in its real estate returns in 2008, with declines of 21.9%, the largest in its history. The pension fund is now seeking ways to stem future losses.

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Caisse de depot et placement du Quebec saw its real estate portfolio drop 21.9 percent last year as the value of its overall assets fell from C$155.4 billion ($120.69; €95.4 billion) to C$120.1 billion –  the biggest decline in its history.

In its annual figures, Caisse de depot said all areas of investment, with the exception of “the best government securities” had recorded losses.

Fernand Perreault, president and chief executive officer, said in a statement: “As with all other investors, the first element that explains our return this year is the global financial crisis that broke out in the fourth quarter. In October 2008, in a matter of days, the world tipped into the worst financial and economic crisis of the past 80 years.”

Caisse de depot has real estate investments of approximately C$20 billion, of which 8.4 percent is investment in private equity real estate vehicles. It has previously invested with firms such as The Blackstone Group, The Carlyle Group, and Lone Star.

In 2008, Caisse de depot’s real estate investments, which are spread across Europe, Asia and the US as well as Canada, underperformed “market or recognized indexes” by 1,851 basis points. Over the last five years however, these assets have underperformed by only 195 basis points, returning 17 percent to investors. The assets returned 12 percent for the fund in 2007 and 20.6 percent in 2006.

In response to the global financial crisis and “the significant likelihood that it would intensify” and to the tumbling value of the Canadian dollar, Perreault said that Caisse de depot changed its asset allocation last October to increase its liquid assets and to reduce its stock market exposure. As part of this programme, Caisse de depot will also reduce its foreign exchange hedging.

Canada’s premier Jean Charest reacted to the results buy saying he was disappointed but not surprised. However, according to reports, he has asked for Caisse de depot executives to appear before a special legislative committee to explain the risks taken that led to the loss.