The Caisse de dépôt et placement du Québec is repositioning its real estate group to focus on its core businesses after reporting a $5.7 decline, the Quebec pension manager said Tuesday.

Weak global market conditions have “significantly contributed to unrealized declines in value of the Caisse’s less liquid investments,” it said.

At June 30, decreases in the value of real estate investments amounted to $4 billion, while those of other less liquid investments totalled $1.7 billion. “The overall decline of $5.7 billion offset the 5% return that the Caisse earned during the semester.”

The organizational and strategic changes include the integration of the Cadim division into the SITQ subsidiary; and the cessation of investments in the mezzanine and other subordinated loans sector.

The Caisse also announced the appointment of René Tremblay to the position of executive vice president, real estate, and president of the Caisse’s real estate group.

“These changes were necessary to ensure the success of the real estate group in the context of a weakened global real estate market, especially in the United States. They will allow us to focus our efforts in the businesses that have produced excellent long-term returns: 11.9% over 5 years and 12.1% over 10 years,” said Caisse President and CEO Michael Sabia.

The Cadim division, which invests in multi-residential properties and hotels, will be integrated into the SITQ subsidiary, a which invests in the office buildings and business parks sector.

“Cadim and SITQ carry out their operations in complementary sectors,” explained Tremblay. “Our goal in this reorganization was to streamline the structure of the Real Estate group and to give it the flexibility required to take advantage of investment opportunities and better manage risk. Furthermore, with SITQ’s solid expertise in operational management, we will be able to more proactively manage our investments.”

Until 2008, the Cadim division was responsible for investments in subordinated loans, including mezzanine loans, especially in the U.S. market.

“The investment model adopted by Cadim was aimed at seeking higher returns through increased risk. In the real estate financing sector, Cadim’s strategy was based on forecasts calling for marked growth of the subordinated loans market,” stated Sabia. “The financial crisis, however, eroded market conditions needed to underpin that strategy, namely in the United States.”

In 2008, all of the real estate group’s investment activities in real estate debt, including those of Cadim, were assigned to a new subsidiary, Otéra Capital. The Caisse said that this subsidiary will now focus on its core business: first mortgage loans. This means it will cease to invest in the mezzanine and other subordinated loans sector.

In addition to Tremblay’s hiring, changes to the real estate group structure include the following appointments:
• Karen Laflamme is appointed senior vice president, real estate;
André Charest is appointed senior vice president, risk management – real estate.

The Caisse manages funds primarily for public and private pension and insurance plans. At December 31, 2008, it held $120.1 billion of net assets.

IE