CFA Québec Real Assets Forum 2015 Real Estate Panel Discussion 11 March 2015 Frank Belvedere CFA, F.C.I.A. Partner
Introduction It is a pleasure to be here today to moderate this panel discussion on real estate. Our panelists are: Peter Cuthbert, Senior Vice President and Partner, Fiera Properties Peter McDonald, Vice President, Managing Director, Manulife Real Estate Simon Treacy, Global Chief Investment Officer & Head of U.S. Equity for BlackRock Real Estate After my introduction, each panelist will make a brief presentation and we will then turn to questions and discussion. MERCER March-12-15 1
Introduction One of the key areas consultants work with clients in is setting investment policy asset allocation to meet objectives: Pension funds need to earn a return of 6%-6.5% to meet going-concern liabilities and costs Endowments need to meet their spending obligations and administrative expenses and adjust endowed capital for inflation. They generally need to earn 6.5% to achieve this. With bond yields near historic lows and equity markets at all-time highs, achieving objectives may be difficult. Real estate can help. MERCER March-12-15 2
Real Estate Investment in buildings and land for both income and potential capital gains Key strategies include core, value-add and opportunistic Key sectors include office, retail, industrial and residential Risk and reward varies by strategy, sector and geography throughout the economic cycle Investors should diversify across sectors, regions and geographies MERCER 3
Key Benefits of Real Estate Institutional Investor Objectives Inflation Diversification Income Growth Sensitivity Sustainability MERCER 12 March 2015 4
POTENTIAL RETURN Real Estate Risk and return varies by strategy SECURITY OF INCOME GROWTH OF INCOME & VALUE Opportunistic Core Substantially leased, stable, single or multitenant property Primary property sectors Long-term holding period Core plus Property redevelopment or repositioning strategies Moderate leverage Intermediate-term holding period Distressed properties and loans, corporate & government dispositions Growth capital Emerging property sectors Seek to capitalize on economic, financial & property market dislocation RISK MERCER 5
Real Estate Canadian real estate returns vs. other asset classes Real Estate index returns and volatility vs. equities and bonds as at December 31, 2014 1-year return 3-year return 5-year return 10-year return 10-year volatility REALPac / IPD Canada - (Direct) 7.3% 10.8% 11.8% 11.4% 4.4% NAREIT Canada - (Listed) 10.3% 7.8% 12.9% 9.1% 19.3% NAREIT Developed (C$) (Listed) 26.3% 21.0% 14.3% 6.5% 19.7% DEX Universe Bonds 8.8% 3.7% 5.4% 5.3% 3.5% DEX Long Bonds 17.5% 5.1% 9.0% 7.4% 6.7% S&P/TSX Composite 10.6% 10.2% 7.5% 7.6% 15.9% S&P 500 (C$) 23.9% 25.7% 17.8% 7.3% 12.3% MSCI EAFE (C$) 4.1% 16.5% 7.9% 4.6% 14.7% MERCER March-12-15 6
Real Estate Implementation - factors to consider Strategy Geography Sector Implementation Core Canada Office Open-end Fund Core plus US Retail Closed-end Fund Opportunistic Europe Industrial Listed Securities Global Residential Direct Investment Country specific Hotel MERCER 7
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