Cadadas pension funds splurge

$12bn on real estate in Australia

CANADA’S biggest pension fund has made investments worth about $6.7 billion in Australia in the past 1.5years.

The $137bn Canadian Pension Plan Investment Board is also committed to investing another $900 million with Goodman Group, including $595m for its share in the proposed takeover of the ING Industrial Fund (IIF) in a Goodman-led consortium.

It is the largest investor in Australia among global pensions, which have collectively put more than $12bn in Australian companies or assets in recent months.

Commenting on the IIF deal, Graeme Eadie, CPPIB senior vice-president, real estate investment, said the transaction was an opportunity to invest in a high-quality industrial property portfolio.

“It represents our largest real estate investment in Australia,” Mr Eadie said.

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This deal came within four weeks of CPPIB buying a 25 per cent stake in Westfield Stratford City for $700m. This is its second investment with the Australian shopping centre giant Westfield Group.

Its largest deal in Australia to date is toll road company Intoll, which it took over and delisted last month after shareholders approved its $3.5bn offer.

Intoll, the former Macquarie Infrastructure Group, was the second former Macquarie vehicle that CPPIB had acquired.

Its first acquisition was the former Macquarie Communications Infrastructure Group, for which it paid $2.2bn.

CPPIB, based in Toronto, is a professional investment management organisation that invests the funds not needed to pay current benefits. It has also invested with groups such as Dexus Property Group and Macquarie Global Property Advisers, a private equity group, and Colonial First State Global Asset Management.

It is thought to be close to acquiring an office tower in Lend Lease’s Barangaroo project, on Sydney’s waterfront.

CPPIB regularly co-invests with The Netherlands’ APG (Algemene Pensioen Groep, or “all pensions group”) such as in the Goodman consortium in which APG has a 25.2 per cent stake.

APG is also a 25 per cent owner of Westfield Stratford City in Britain and also has a third interest in the Westfield UK Shopping Centre Fund. One of APG’s first investments in Australia is a 40 per cent stake in a Valad fund, which owns Goldfields House, in addition to also owning an undisclosed stake in the unlisted Valad Core Plus Fund.

APG also has an investment in an unlisted GPT fund.

While APG declines to comment on specific investments, its head of strategic real estate in Asia, Daan van Aert, said Australia was an attractive area for real estate primarily due to the stable economic growth, strong regulatory framework and because it is a transparent market. “We are at our target exposure for Australia,” Mr van Aert said. “As such, we are currently more focused on asset management and recapitalisations of our existing portfolio.”

He said APG’s strategy was to set up local partnerships with the strongest real estate managers in the world, such as Westfield and Goodman Group from Australia.

Another Dutch pension fund, PGGM, last month invested $262m in the new Lend Lease Social Infrastructure Fund in Britain. PGGM holds $1bn in Westfield notes, secured on six shopping centres.

Global pension funds including those from Malaysia, Korea, Canada and Sweden have recently stepped up investment as they seek out countries with solid economic growth to invest in search of a stable future income stream.

While some chose to partner with the likes of Goodman Group, Colonial First State Global Asset Management, Westfield, Lend Lease or GPT Group, others opt for direct investment.

Korea’s National Pension Scheme, Malaysia’s Permodolan Nasional, Switzerland’s Swiss pension group AFIAA and Germany’s Deka Immobilien have all bought Australian office blocks.

Additionally, an unknown number of pension funds invest through global fund managers, like the Chicago-based LaSalle Investment Management; the Hong Kong-based CLSA Capital Partners; CBRE Investors; or Sweden’s SEB Asset Management.

As members’ contributions pile up around the world — just as in Australia — international property consultant DTZ recently estimated that $US281bn of new capital would be available for investments this year, up 22 per cent from a year ago.

China, Australia and India would attract about 15 per cent of that capital, said a recent DTZ report.

Jonathan Thompson, KPMG’s head of global real estate, who was in Sydney recently, said more pension funds would start to put their money in real estate. For instance, he said Norway changed its laws in March last year to allow the Norwegian Government Pension Fund, which manages $US520bn, to invest in real estate.

Alistair Meadows, regional director of international capital group Jones Lang LaSalle, said the next wave of investment would come from Asian pension funds.

By 2020, he said Asian pension funds were expected to have assets totalling $4.3 trillion.

Since 2009, South Korea’s National Pension Scheme, which invests the pension contributions of about 18 million people, had acquired $3.6bn of prime real estate in London; Tokyo, Berlin and Sydney, he said.

In Australia, NPS bought Aurora Place, a blue-chip CBD tower, for $635m.

On his recent visit to Seoul, Mr Meadows met several second-tier Korean pension funds — the equivalent to industry funds in Australia — that were keen to follow NPS’s footsteps overseas.

“We believe that most pension funds are underweight to real estate, especially in Japan and Korea,” Mr Meadows said.

“In 2011, we expect to see them in Australia looking for direct acquisitions; co-investment with an Australian partner or indirectly through unlisted Australian property funds.”

While the established pension funds will have between 5 per cent and 10 per cent of their investment in property, Mr Meadows said most Asian pension funds had no allocation or less than 5 per cent of their assets in property.

DTZ associate director Aurelo Dinapoli said pension funds were keen to deploy their capital in key Australian cities — Sydney and Melbourne.

“We represented Chinese pension funds looking for Australian assets,” Mr Dinapoli said.

“Money is not an issue for this group. They haveĀ  lots of money to invest.”

He said that typically a pension fund looked to invest between $200m and $300m on its first investment in Australia.

Rick Butler, senior managing director of CB Richard Ellis, has facilitated several sales, including most recently the $113m purchase of 737 Bourke Street by Malaysian pension group KWAP.

Mr Butler said these buyers were interested in direct assets or in “club” deals with small numbers of like-minded investors.

Some consultants believe that the high Australian dollar may reduce the flow into Australia.

APG’s Mr van Aert said: “The general policy is hedging currency exposures, and as such the hedging cost is factored into our investment returns and decisions.”

Sourced & published by Henry Sapiecha