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Lower-Risk Real Estate Preferences for Canada-Based Investors – December 2014

by Thomas Barker

  • 02 Dec 2014
  • RE

Preqin’s Real Estate Online service currently tracks over 140 institutional investors based in Canada, constituting 5.5% of the North America-based real estate investor universe. Twenty percent of Canada-based LPs have an allocation to real estate below 5%, although a large proportion (86%) maintain a target allocation of 5% and above. This indicates that some Canada-based investors will be putting more capital to work in order to get closer to their target allocations. 

A significant 75% of Canada-based real estate investors allocate capital to private real estate funds, and the chart below illustrates the distribution of real estate fund strategies targeted by Canada-based investors against all other investors. The proportion of Canada-based institutions pursuing core-plus and value added strategies is slightly below that of all other investors; these strategies are pursued by 22% and 51% of investors respectively. The corresponding figures for all other investors are 31% and 57%.

The notable differences lie with the polarized strategies on the risk-return spectrum. Seventy-four percent of Canada-based investors favour the lowest-risk core strategy, compared to 60% of all other investors. This preference towards lower-risk strategies is also reflected in the lack of appetite for high-risk opportunistic vehicles; only 18% of Canada-based investors favour this strategy, and this figure is dwarfed by the 53% of all other investors targeting opportunistic vehicles. 

Interestingly, in a previous blog, where New York-based investors were compared to all other US-based institutions, it was found that a relatively small 35% of all US-based investors favoured a core strategy, while a strong preference for risk was reflected by 55% targeting an opportunistic strategy. This shows that within North America, the incidence of risk-aversion is divided significantly at the Canadian border, with Canada-based investors more likely to shun higher risk investments in favour of the stability provided by core funds. 

Geographically, Canada-based investors show a strong bias towards their own continent, with North America targeted by 98% of these investors. Europe, Asia and South America are targeted by 24%, 17% and 7% of Canada-based investors respectively, with a quarter pursuing global exposure.

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