Asia Pacific now accounts for about a quarter of outbound allocations by Canadian investors, up from just 10% between 2015 and 2019, according to a June 21 report by Real Capital Analytics (RCA) – and much of that outflow has been captured in regional real estate.

This is part of an overall trend of Canadian investors diverting their attention outside North America, with around half of outbound allocations leaving the continent since 2020.

“Five of the top eight Canadian investors in the [Asia Pacific] region since 2016 [have been] pension funds. By contrast, US and European presence in Asia Pacific real estate tends to derive from a wider variety of sources, with banks, investment managers, and insurance companies among the major players,” said Benjamin Chow, head of analytics, Asia Pacific at RCA.  

Established players that had been around since the global financial crisis, such as CPP Investments Board (CPPIB), and Brookfield, steadily grew their teams on the ground in the mid-2010s, according to Chow.

Benjamin Chow, RCA

Canadian investors overall have been growing their exposure to Asia Pacific real estate sectors over the past few years, especially with a focus on India, China and South Korea. 

As of March 31, 2021, CPPIB had C$134 billion ($109 billion) of net assets in Asia Pacific (including Japan and Australia), representing 27% of its overall assets under management (AUM).

This compares with its 2014 annual results, in which Asia ex-Japan, Japan and Australia contributed 7.4%, 3.8% and 3.5% respectively, and 14.7% collectively to its total global portfolio.

According to its 2021 annual report, the pension has net assets of around C$497 billion ($403 billion) as of March, with a five-year annualised return of 11%. 

In Greater China, CPPIB had C$72.7 billion ($59 billion) invested, according to its latest financial results. Out of the overall portfolio, 12.7% was dedicated to real estate assets, 55.9% to equities, and 13.5% to credit assets.

“Five of the top eight Canadian investors in the region since 2016 are pension funds. In contrast, US and European presence in Asia Pacific real estate tends to derive from a wider variety of sources, with banks, investment managers, and insurance companies amongst the major players,” he added.  

Source: RCA

SHIFTING PRIORITIES

Despite CPPIB’s focus on Asian real estate, a recent deal was struck that allowed it to exit several China-based commercial projects by Singaporean real estate group CapitaLand.

Following the Canadian pension fund’s exit, Chinese insurer Ping An Insurance (Group) plans to acquire stakes in six retail and office projects in China from CapitaLand, for up to Rmb32.7 billion ($5.06 billion).

Ping An Life Insurance, a unit of Ping An, said on June 28 that it will acquire the stakes in six "Raffles City" commercial projects. Post-transaction, CapitaLand will retain an effective stake ranging from 12.6% to 30% in each project. The deal is targeted for completion by September.

The net proceeds to CPPIB from the sale would be approximately C$800 million ($649 million) before closing adjustments; the pension did not disclose its exact shareholdings in these projects.

A spokeswoman from CPPIB told AsianInvestor that, following the exit, the firm still has sizable real estate investments in China, although no country-wide investment breakdown figures are available.

"CPPIB first invested in Raffles City China shortly after we opened our Hong Kong office in 2008. As China's economy and real estate market expand and mature, this is an ideal time to monetise the investment for other opportunities in the country," noted Guy Fulton, managing director, head of real estate for Greater China at CPPIB, in an annoucement. The spokeswoman declined to provide specific targets for these "other opportunities".

“The six properties are the top-notch core assets of CapitaLand, with high-calibre tenants and stable rental income. The proposed investment will optimise the allocation of insurance funds and offer a stable and good return,” Ping An told AsianInvestor.

A BIG DEAL

Chow noted that the Ping An acquisition was one of the five largest Asia Pacific real estate deals in recent years. 

“Around half the portfolio was comprised of retail and hospitality assets, a remarkable statistic considering how retail and hotel properties have been shunned worldwide. Large shopping malls, in particular, have fallen out of favour worldwide since the pandemic began, but they remain in vogue for investors targeting China," he said. 

The deal could continue to put Chinese office and retail assets in the spotlight. According to the RCA report, office and retail assets were among the highest preferences for Canadian capital in the Apac region from 2016 to 2021 year-to-date.

Source: RCA