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Saturday, February 24, 2024

CDPQ Set to Slash Jobs at Ivanhoe Cambridge, Otera After 6.2% Loss in 2023

CDPQ chief executive Charles Emond

Quebec public pension manager Caisse de Dépôt et Placement du Québec (CDPQ) is preparing to reduce headcount at its real estate divisions after the fund manager recorded a 6.2 percent loss on its property investments in 2023 — the only asset class to post a negative return last year.

The underperformance of the Canadian pension giant’s C$45.6 billion ($34.5 billion) real estate investments contrasts with gains in its public equities, fixed income, private equity and infrastructure strategies, with its overall portfolio posting a 7.2 percent return for the year, according to the fund manager’s 2023 financial results announced on Thursday ↗.

“The market was difficult for real estate in 2023, which is reflected by the benchmark index’s -10.0 percent one-year return,” CDPQ said in the announcement. “Despite economic challenges and structural issues in some sectors such as offices, the Real Estate portfolio demonstrated more resilience, and the repositioning toward promising sectors such as logistics that began in 2020 mitigated the decrease in value.”

The C$3.0 billion ($2.3 billion) of property losses last year come as CDPQ is preparing to bring its Ivanhoé Cambridge real estate investment division and Otéra Capital real estate lending unit under direct control ↗ in an effort to boost efficiency, with the fund manager targeting C$100 million ($74 million) in annual cost savings.

Substantial Job Cuts

The integration of the real estate subsidiaries has already been preceded by leadership changes at Ivanhoé Cambridge, with the unit’s president and chief executive officer Nathalie Palladitcheff announcing last month ↗ her decision to exit the organisation following the transition period, while Karim Habra, head of Europe and co-head of Asia Pacific, is set to join Partners Group next month ↗ as the Swiss private equity firm’s global co-head of real estate.

Ivanhoe Cambridge president and chief executive officer Nathalie Palladitcheff will be leaving after the transition

“It’s inevitable that there will be job losses,” CDPQ chief executive Charles Emond told local media ↗ in a press conference on the 2023 results. “Are we talking about dozens of job cuts? No. We’re talking about something that’s more substantial. The C$100 million figure won’t all come from job reductions, but it will probably be the most important factor. It’s about maximizing our performance for our depositors, at better cost.”

Ivanhoé Cambridge has 570 employees, compared with about 185 for Otéra Capital, according to CDPQ. The fund manager expects the restructuring to conclude within 18 to 24 months of its April commencement.

CDPQ’s real estate portfolio, which accounted for 10.5 percent of its C$434 billion ($328 billion) total net assets under management as of December, was stung by high interest rates and falling asset valuations in 2023 after notching its best-ever performance of 12.4 percent in 2022.

With US assets accounting for half of its property portfolio, Emond pointed to the quality of its American holdings as insulating against a broader market decline. While the overall US market saw assets trade at an average 20 percent discount last year, CDPQ’s disposals came at an average mark-down of 3 percent, Emond said in remarks cited by Bloomberg.

Real estate has been CDPQ’s worst performing strategy over the past five years, with the division posting a 0.5 percent loss from 2019 to 2023 as its other divisions all managed positive returns over the same period.

“Over five years, the annualized return was -0.5 percent, compared with 0.8 percent for the index, notably due to the portfolio’s overweighting in Canadian shopping centres at the beginning of the period,” said CDPQ in the announcement. “The strategic repositioning over the last few years, which represented around 300 transactions totalling over C$50 billion, is nevertheless bearing fruit: since the pivot, C$5.5 billion in value added has been generated compared with the benchmark index.”

The pension giant posted 17.7 percent returns for its public equities strategies in 2023, driven by US technology stocks, while its fixed income strategies notched an 8.1 percent return. The fund manager’s infrastructure and private equity portfolios saw gains of 9.6 percent and 1.0 percent in the same period, respectively.

India in Focus

Within Asia Pacific, CDPQ has identified India as a growth market, with Ivanhoé Cambridge’s co-head of Asia Pacific George Agethen telling Mingtiandi’s Singapore forum in November ↗ that the development of the country’s financial markets and the maturing of its real estate sector are likely to yield opportunities.

Last month, Ivanhoé Cambridge announced that it is joining with longtime partner Logos to invest INR 11 billion ($130 million) to expand an industrial park in India’s Maharashtra state ↗. Ivanhoé set up the $400 million Logos India Logistics Venture ↗ with the Sydney-based industrial specialist in 2017 to develop and own industrial facilities in key Indian markets.

The Quebec institution also teamed up with Singapore’s Mapletree Investments last year to launch a $1.9 India office park venture ↗.

The pivot to India comes as CDPQ has reportedly shuttered its Shanghai office ↗, with Canadian pension funds putting the brakes on their China investments ↗.

Kaylie Pferten
Kaylie Pferten
A pilot of submersible crafts in a former life, now married to my husband David and writing about investment advice.

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