Canadian pension Caisse de depot et placement du Quebec has taken measures to “reposition” and “streamline” its real estate investment programme after the sector contributed $4 billion to an overall $5.7 billion loss for the half-year to 30 June.
Broken down, Caisse made a $2.2 billion loss in real estate debt and a $1.8 billion loss in real estate properties. Other losses by the pension include a loss of $1.3 billion in private equity and infrastructure investments.
As a result, the pension is undertaking two key measures aimed at minimising future losses in the sector. Firstly, it will halt investment in the “mezzanine and other subordinated loans sector”. Second, it will merge its Cadim division, which invests in residential properties and hotels, with its SITQ subsidiary, which targets offices and business parks.
Michael Sabia, chief executive officer, said: “These changes were necessary to ensure the success of the real estate group in the context of a weakened global real estate market, especially in the US.”
Cadim was previously responsible for investments in subordinated loans, including mezzanine loans. In 2008, all of Caisse’s real estate debt investment activities were merged into another unit called Otera Capital. The announcement by Caisse, effectively sees Otera revert back to its core business aimed at the first mortgage loans market.
“The investment model adopted by Cadim was aimed at seeking higher returns through increased risk. In the real estate financing sector, Cadim’s strategy was based on forecasts calling for marked growth of the subordinated loans market,” he said, “The financial crisis, however, eroded market conditions needed to underpin that strategy, namely in the United States.”