Just a few months ago who would thought we would see Canadian pension funds hitting markets across Europe in search of distressed assets. Being the ‘poor cousin’ of the US it would be logical to assume that Canada would be struggling as well but this does not seem to be the situation, at the moment.
A quick skim through the financial press will reveal no rescue package for the Canadian economy, no major bankruptcies and no distressed calls to international partners. It seems as though Canada is actually fairing better than most although the reasons for this are not clear.
However, it looks as though the Canadian pensions industry sees great value in areas such as the UK and they have not been afraid to put cold hard cash on the table. So what kind of investments are we looking at? What value?
Cash rich pension sector
While countries such as the UK struggle to revive a flagging pensions market with more and more schemes falling into deficit, life has never been better for the Canadian pensions market. It is estimated that the total assets across the Canadian pension fund sector total around $1 trillion which is a massive figure for a country which has been overshadowed by the US for so long.
The Canadian property sector takes on average between $20 and $25 billion in new investment funding each year with pension fund managers by far and away the largest investors in the sector. Historically the pension industry has had very strong exposure to the Canadian property market with areas such as office, industrial, retail and mixed-use properties high on the agenda.
Overseas property investments
As a whole the Canadian pensions sector currently has an exposure of some $70 billion to European property markets with the UK seemingly top of the agenda. It was also revealed that last year alone the industry invested in excess of $10 billion into Europe, into areas which included the UK, Germany, France and Russia although the United States and Australia are also in the picture. However, this year looks like being very very different…….
Early indications are that on the whole the Canadian pension fund sector is looking to increase its exposure to European property markets by 5 percentage points which indicates an investment of some $50 billion this year alone. As we mentioned above it looks as though it is the same again with much of the investment targeted at the UK with Canadian investors happy to pick up an array of distressed assets in and around Europe.
The Canadian economy
All of those who have ever looked at the Canadian economy will know that the country has gone through something of a major change over the last decade and has finally been able to cut the strings which attached it so tightly to the US. Left to look after its own interests there was a major shift in the 1990s which saw the government seek to exploit the country’s massive array of natural resources, the income from which was pumped back into the economy with spectacular results.
Currently unemployment is at it lowest level for over 30 years, 5.9%, which is a reflection of the massive increase in economic activity over the last decade. The country is currently ranked in the top ten of the wealthiest nations in the world and the economy has shown, and continues to show, significant growth. It is also interesting to see that Canada is one of the only net exporters of energy in the world – something which is a very lucrative area at the moment!
The future
While it may surprise many to see how involved Canadian pension funds have become in the UK property market, as well as other areas of the world, it is maybe not so surprising when you consider the massive reserves of natural resources at the country’s fingertips and the efficiency with which it has been able to exploit these markets to the full.
Interestingly, the massive investment in overseas property has actually turned the spotlight on Canada and the potential for its own property market. It has also become one of the hot spots which people look to emigrate to with the number of applications rising steadily over the last few years. Maybe the fact that Canada has always been overshadowed by the nearby US has been something of a blessing in disguise as it has allowed the country to put its house in order and attack overseas property markets with often perfect timing.
Is Europe a good move at the moment?
History has shown that often the best time to buy assets is when everyone else is selling and prices are being smashed for no fundamental reason. Fear and panic can be major headaches for investment markets and it seems as though the property markets suffer as much as any other. These Canadian pension funds may not see a marked return, or indeed any return, on their European property investments for some time but they are adamant that there is value there waiting to escape in the future.
In the current environment it can often be difficult to take a constructive approach to your own property market when all we hear is doom and gloom, but maybe in a few years time we will look back and shake our heads at the missed opportunity while the Canadian pension funds count their profits!
Conclusion
Many people will be surprised to hear that Canada is a massive net investor into overseas property markets and the fact that it is one of the top ten wealthiest countries in the world. After playing second fiddle to the US for so long the country is now standing on its own two feet and growing in stature. The economy is doing well, the country has massive natural reserves to rely upon and bizarrely the fact the country is pushing so much investment into European property markets has turned the spot light on the country’s own property market.