“There are pockets … across the country that are hot, and some that are not … ,” says Ryan Bradley.
By Ed McCarthy
A recent 2020 CAiP Virtual Forums’ session zoomed in on real estate and infrastructure investing.
Speakers Ryan Bradley — senior investment officer with the Province of Prince Edward Island — and Claiborne Johnston — Managing Director, Real Assets with Morgan Stanley Investment Management — highlighted the current global real estate investment market and the market’s post-COVID outlook.
Strengths & Weaknesses
Ryan Bradley
The $3 billion (in Canadian dollars) Prince Edward Island pension plan has 13% of its funds invested in real assets, divided almost equally among Canadian real estate, global real estate and global infrastructure.
Bradley said the real assets are mitigating portfolio volatility and decreasing the plan’s risk profile, and he believed the plan will increase real asset allocation slightly in the future.
Distribution, residential and commercial properties have held up well, both in Canada and globally, but performances vary, Bradley noted: “There are pockets of real estate across the country that are hot, and some that are not so hot. It’s an interesting space here in Canada for that reason.”
Johnston supported that observation from a global perspective. He said the retail sector has been hit especially hard but the industrial sector and niche sectors such as self-storage have performed well.
The biggest ongoing debate has been around the office sector. For example, the Wall Street Journal recently reported that only about 25% of U.S. employees had returned to their offices as of mid-November and the outlook for future demand remains unclear.
“We’re obviously dealing on a global basis with an ever-changing dynamic, and what impact that will have on [the] office [sector] going forward is still very much to be seen,” Johnston explained.
Looking Ahead
Claiborne Johnston
An important post-COVID decision Canadian pension plans will face is whether they should continue to focus on conservative core real estate holdings or if they should seek out the higher potential returns from more aggressive investments.
Prince Edward Island’s pension first invested in core real estate in 2011 and the fund’s investment committee takes a systematic, structured approach to new investments, Bradley explained.
An allocation to a slightly more aggressive core-plus holding is possible, he said, but it’s unlikely that the plan will venture beyond that level in the short term.
Despite the headwinds associated with COVID-19, Morgan Stanley continues to see capital inflows into their core strategies, Johnston reported, and the firm is also seeing a resurgence of interest in global value-add and opportunistic strategies.
Investors believe this will be a unique vintage for property investment and are seeking to position their portfolios to take advantage of opportunities on a global basis.
***
Forum registrants can view the full session with Ryan Bradley and Claiborne Johnston online.
***
Ed McCarthy is a longtime financial writer and author of three books, including “Foundations of Computational Finance with MATLAB.”
