canadian pensions | Pension360

Canada Pension Buys Big Stake in San Francisco Office Tower

The Canada Pension Plan Investment Board (CPPIB) is buying a major stake in a popular San Francisco office tower, the fund announced on Thursday.

The rest of the property is owned by Hudson Pacific Properties, Inc.

From Bloomberg:

Canada Pension Plan Investment Board agreed to pay about $219.2 million for part of a San Francisco office building where ride-sharing company Uber Technologies Inc. and mobile-payment provider Square Inc. have their headquarters.

The pension fund plans to buy the 45 percent stake in 1455 Market St. from Hudson Pacific Properties Inc., the companies said today in a statement. Los Angeles-based Hudson Pacific has owned the 22-story tower since December 2010 and will continue to oversee management and leasing.

The purchase is the Canadian pension’s first direct investment in San Francisco, where office rents have soared 88 percent in almost five years, according to Jones Lang LaSalle Inc. (JLL) Demand for office space has been buoyed by annual job growth of 3.6 percent in the city, outpacing the U.S. by one percentage point, the brokerage said in a report this week.

San Francisco is “one of the best-performing U.S. office markets and a key strategic market for CPPIB in that country,” Peter Ballon, head of real estate investments in the Americas for the pension, said in today’s statement.

The 1.03 million-square-foot (95,300-square-meter) property, formerly a Bank of America Corp. data center, was built in 1976 and has ground-floor retail.

Read the press release here.

Photo by ilirjan rrumbullaku via Flickr CC License

Infrastructure Investments Becoming Big Part of Canadian Pensions

Infrastructure investments are becoming increasingly common endeavors for public pension funds. That’s true around the world, but nowhere is the trend more pronounced than in Canada, where the average pension fund has doubled its allocation to infrastructure since 2009. As reported by Benefits Canada:

Historically, Australian and Canadian investors—primarily pension funds—have dominated investment in infrastructure assets, accounting for 40% of historical allocations despite representing only 7% of total potential available capital.

Canadian pension assets totaled US$1.6 trillion in 2013, while infrastructure allocations by Canadian plans totaled US$47.2 billion. This contrasts with U.S. pension assets, which were in excess of US$18 trillion also in 2013, and whose allocations to infrastructure were only US$25.4 billion, less than those made by Canadian pension plans.

On average, Canadian pension funds have allocated 4% of their pension fund assets to infrastructure, up from 2% in 2009.

More recently, there have been some noticeable trends in infrastructure investing, both in terms of investor location and type. To date, pension funds have accounted for 72% of allocations made to infrastructure assets. Based on prospective allocations, sovereign wealth funds are expected to increase their “market share” from 13% of the total allocations to 40%, with a corresponding decrease in the percentage attributed to pension funds (45% versus the present 72%).

Funds in the United States might not be in on the game yet, but insiders say they expect state-level pension funds to significantly boost their allocations to infrastructure investments. More from Benefits Canada:

American state pension funds, as well as Asian investors[…]have started to take an active interest in infrastructure investing. These two groups currently account for 20% of allocations, but based on surveys by Preqin, are expected to increase these to 48% of total infrastructure allocations. Most notably, the Government Pension Investment Fund of Japan has committed 0.2% to infrastructure, though this translates into US$2.7 billion in investments over the next five years.

It’s a very interesting trend, and one that likely won’t reverse course in the near future. The exception may be smaller funds, who will have more trouble navigating direct investments in infrastructure. They’ll have to hire third-party managers, and that may not be appetizing to some funds who are becoming increasingly allergic to fees and investment expenses.

Photo by Kyle May via Flickr CC License

Fixed-Income ETFs Gain Traction With Canadian Funds

Exchange-traded funds are becoming an increasingly popular investment vehicle for institutional investors around the world, but that trend is especially true among Canadian pension funds, according to a new study.

One type of ETF was particularly popular: fixed-income.

The study, which interviewed public and corporate pension funds as well as foundations and endowments, found that 57 percent of institutional asset managers are using fix-income ETFs in 2014. In 2013, that number was 45 percent.

The report, produced by Greenwich Associates, offered some reasons for the growing popularity of bond ETFs. From the Financial Post:

“Increasingly, institutional funds and asset managers are viewing ETFs not simply as useful tools for making tactical adjustments to portfolios, but rather as efficient methods for implementing new investment strategies.”

“In particular, ETFs appear to be steadily gaining traction in fixed income — a trend that could reflect investors’ search for better and more efficient approaches to the asset class in a shifting interest-rate environment.”

“Institutions’ heavy usage of passive strategies is helping to drive the growth of ETFs in fixed income,” the study said. “Virtually all the institutional funds and asset managers employ passive strategies in fixed income, and nearly a quarter invest more than half of fixed-income assets in index strategies.”

Interestingly, this is a relatively recent phenomenon. Of the Canadian institutions holding fixed-income ETFs, more than 20 percent said they had started using the vehicles less than two years ago.

Even more popular than fixed-income are equity ETFs, which are employed by the vast majority of Canadian institutional investors. From FP:

Despite this growing penchant for bond funds, equity-related issues remain the most popular ETF investment among institutions, with nearly 80% using the funds in their domestic stock portfolios and 85% employing them to gain U.S. equity exposure.

ETFs are primed to continue their upward trend. According to the study, 40 percent of institutions are planning to increase their allocation to ETFs next year. Only 2 percent of respondents said they plan to reduce allocations.