Caisse fails to beat investment benchmark as real estate posts negative return

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Ivanhoé Cambridge, the real-estate arm of the Caisse de dépôt et placement du Québec, will likely sell a third of its 25 shopping centres after its 2019 returns dragged down the entire fund.

The Caisse failed to beat its investment benchmark in 2019 as Ivanhoé Cambridge recorded a negative 2.7-per-cent return. The Caisse said its real-estate portfolio was “notably affected by the weak performance" of its Canadian shopping centres.

Nathalie Palladitcheff, president and chief executive officer of Ivanhoé Cambridge, said Thursday at a news conference that while “there are 25 shopping centres and there will be 25 solutions," she added that “of the 25, at least a third need to be sold eventually, because the possibility of transformation in relation to the capital that needs to be invested does not correspond to our priorities at Ivanhoé Cambridge.” (Her remarks were made in French and translated by the Caisse.)

Ivanhoé Cambridge made attempts to sell portions of its Canadian shopping-centre portfolio starting in 2018, but ultimately made no major deal. Early in 2018, the company took its Calgary Market Mall off the market. Last year, it was seeking to sell a 50-per-cent non-managing interest in two top-performing malls, Vaughan Mills north of Toronto and Conestoga Mall in Waterloo, Ont., as well as up to 100 per cent in eight other shopping centres from Victoria to Quebec City. The Globe and Mail reported in August, 2019, that it had halted the sale because it couldn’t get the price it wanted.

The Caisse also said declining residential real-estate rents in New York City played a lesser role in its real-estate performance. Its real-estate benchmark returned 1.4 per cent.

The Caisse says Ivanhoé Cambridge will accelerate a move from more traditional assets and into "tomorrow’s sectors,” driven by trends in urbanization, socio-demographic changes and new technologies.

Overall, the Quebec pension plan said it produced a 10.4-per-cent return in 2019, increasing its assets by $31.1-billion to $340-billion. A benchmark portfolio the Caisse uses to evaluate its performance, however, returned 11.9 per cent.

Charles Émond, the new president and chief executive officer of the Caisse, called global markets “highly euphoric" and said “we succeeded here. The portfolio, overall, performed exactly the way we thought it would perform in this type of environment.” Mr. Émond, a former Bank of Nova Scotia investment banker, replaced Michael Sabia as Caisse CEO earlier this month.

While the pension manager’s infrastructure portfolio returned 7.1 per cent, it was below its benchmark index’s return of 17.7 per cent. While the Caisse’s infrastructure portfolio is primarily private assets, the benchmark index includes more than 200 publicly traded stocks, which the Caisse said “benefited greatly from surging stock markets.”

All told, the Caisse’s “real assets” class, which contains real estate and infrastructure and makes up about one-fifth of the portfolio, returned 1.0 per cent, compared with a benchmark of 7.2 per cent.

Caisse’s equity portfolio, which represents about half of its assets, also missed the mark, returning 15.3 per cent compared with a 16.3-per-cent benchmark. The fixed-income portfolio was the only winner, posting an 8.9-per-cent return, beating its 8.0-per-cent benchmark.

The fund closed the year with $340-billion in net assets, with $47.6-billion invested in 750 companies in Quebec’s private sector. Total Quebec-based assets were $66.7-billion at year-end.

The Caisse’s annualized return over five and 10 years was 8.1 per cent and 9.2 per cent, respectively. Over those periods, it said it generated $11-billion and $18-billion in value-added compared to its benchmark portfolio.

Mr. Émond says the pension fund manager expects the next decade "to be more challenging than the past one, during which all investors benefited from the longest bull market in history.”

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