Jonathan Brasse: What does Caisse de dépôt et placement du Québec (parent company) need from Ivanhoé Cambridge?
Bill Tresham: Traditionally real estate has been used as the one active part of the portfolio to give them a jump on what they have. They have C$70 billion ($54.63 billion; €48.58 billion) in bonds to date and around C$80 billion in marketable securities. But with private equity, with infrastructure and real estate, they are looking to get a marginally higher return than the index investor.
JB: Let’s have a brief word about Caisse’s activities since the GFC. How has its portfolio generally been performing?
BT: For the last four years, our returns are 12.7 percent. Roughly since the GFC, it has been in the range of 13 percent to 15 percent. We’re trying to convince them that it’s going to be 500 basis points less going forward, which they accept because they understand the long term nature of things.
JB: Do you think the money coming over from fixed income is here to stay?
BT: It really does feel like it. Real estate, believe it or not, is still fighting for some kind of respect in the world of investing. Everybody fears these moments of really rapid change. That’s what Caisse fears for sure, they fear rapid rises in interest rates, they are totally sure that cap rates are going to go up at the same rapidity, which they won’t and let’s say that that doesn’t necessarily happen, I think the capital is here to stay.
JB: You deployed C$12 billion in 2015 including the organization’s biggest real estate deal – approximately
C$3.5 billion for Stuy Town (a big residential complex in NY). How is it that your team can react so quickly at that scale?
BT: Total transparency. Total transparency with our partners and everybody we work with. We bring our partners with us wherever we are going and we parade them around. By the time it actually comes to having to act, people probably know the asset. That asset (Stuy Town) we knew for ten years. In anything you do, you build up your credibility over time. That is critical. Transparency with everybody.
JB: Today you have six or seven speed dial partners, guys that know they can pick up the phone, give you a call and get a decent reaction.
BT: When I joined in 2010, we had 120 partners. I can’t have dinner once a year with each of them. We have 30 today. But if you take the six or seven that we have done the most business with, our net, after fees and such, return for the last six years was 20 percent.
JB: Is there room for a few more or are you done as far as your speed dials?
BT: No, that’s the fun thing. I think if we’re super disciplined, we can pick up a partner every six or nine months. We always try to have deep relationships and I think we’re capable of having more. New countries, new asset classes. Nobody bats a thousand right? We have to make new friends.
JB: At this point in the market cycle, the subject of risk takes on an extra significance. What do you regard as tolerable risk and what do you regard as intolerable?
BT: We had never hedged currency but we are hedging today. Hedging has become more sophisticated, and the penalty for not hedging is severe. I have C$2 billion invested in Brazil. It has taken us ten years to build that. Our return on that money, until the beginning of last year, was 20 percent. And after last year, it was seven percent. It cost us 700 basis points.