RE at Pension Funds in Canada - What do they do?
Since covid started, I’ve pretty much exclusively seen job postings for real estate roles at pension funds in Canada. I’m curious as to how involved their real estate teams are in the underwriting, due diligence, etc. process, specifically CPPIB, HOOPP, IMCO, and PSP? I’ve worked with a couple of those funds before, and from what I’ve experienced they just look over the investment memos and pre/post DD Argus models. Is that typical?
Lastly, once you start working at a pension fund how hard is the move back to REPE?
It seems that these pension funds operate as a capital allocator. However, isn't that the same for many REPE funds out there? Some REPE funds are very heavy on modeling and what not but probably close to half of the funds on the 50 list just operate as capital allocator. Even the mega funds of the world like Carlyle or even Blackstone do a ton of JV deals with GPs. These funds may do more due diligence but at the end of the day, GPs source deal, execute, and handles all of the heavy lifting.
My opinion is that the pensions funds and capital allocator REPEs (aka pension fund advisors) are similar in process. The biggest nuance is not all pension funds are comfortable with direct investments (Invest in a sponsor’s pipeline) like some of the Canadian public funds mentioned, and they outsource to pension fund advisors.
The other thing is the mega funds tend to work with the mega sponsors (not always) but they want to allocate a lot of capital to fewer sponsors in a programmatic fashion. Mega REPEs can be similar but by virtue of having say US offices (and regional), I feel there is a little less sponsor focus and more long-tail return focus; and local focus.
And one more thing, 10-year holds (longer term).
The term I’m familiar with is dis-intermediation: the bypassing of intermediaries which REPE allocators are one of them. This is where the source of the funds invests directly with the sponsor. One promote (not double).
You’ll especially get to the double promote convo with funds from Asia, since they do it all (are active, not passive). Anyways I digress.
The hard trend is towards more dis-intermediation. You see that everywhere from real estate brokerage to hedge funds vs mutual funds vs index.
I think it ebbs and flows. Direct investments can be sexy but mistakes happen and pull back happens. I think with Calpers for example. I’ve been to the “Source” (the investment office of a large pension) and waited in the lobby. To my right where some youngish folks with their pitch deck for some tech idea. I was invited to share my industry thoughts, but when it came to direct investment, they didn’t do that.
I think there will be more dis-intermediatation but it will ebb and flow. The Canadians (and I’d say Commonwealth counties including Australia - I’ve talked to Australians) have been comfortable investing in English speaking countries and US based global CRE firms. I think that relationship and the ability for US based firms to then open markets, is a symbiotic relationship.
That said REPE is shrinking in my opinion (not as fast as HFs), but the private markets, illiquid and long tail of real estate, relationship based, and unique nature of CRE will create opportunities for the best REPEs. Enough value can be created.
For some reason Canadian has good timing. Maybe they are near the US but are somewhat counter-cyclical. Good for them.