Huge Pension Fund Posts 16% Real Estate Loss

A major Canadian pension fund with billions of dollars in assets under management posted a positive return for the last fiscal year, no thanks to its real estate holdings.

Public Sector Pension Investment Board, otherwise known as PSP Investments, reported a minus-16 percent return in its real estate for the fiscal year ending on March 31, Bloomberg reported. The boogeyman of the pension fund’s real estate was office properties, as rising interest rate and falling occupancy forced PSP to mark down values.

Among seven core asset classes, real estate was the only one to record a negative return for PSP’s most recent fiscal year. The asset class also posted the lowest five-year annualized return of the bunch.

“We did take the opportunity to review the past performance, take lessons learned, so that we could be more focused and disciplined going forward,” PSP Investments CEO Deborah Orida said in an interview. In the two years since Orida took over, PSP appointed an executive to lead property investments and launch a review of strategies and partners.

Recently, the fund reduced its overall exposure to the office market, dropping to 22 percent of its real estate portfolio versus 25 percent a year earlier. PSP is shifting its focus to multifamily, logistics and student housing sectors. Shortly after the start of the pandemic, PSP agreed to invest in a $700 million rental-home venture through a partnership with Pretium Partners.

Real estate makes up only 10 percent of PSP’s portfolio, which counts fixed income and public markets among its top asset allocations.

Pension funds like PSP are vital for financing real estate projects around the world, so any change in their real estate portfolio is significant.

PSP’s recent real estate divestments include an industrial portfolio in Mexico. The pension fund is remaining involved in the Hangar District, a redevelopment near an airport site in Toronto that is expected to yield nearly 3,000 homes, including rentals and affordable housing.

— Holden Walter-Warner