Standard Life looks west with first new fund in five years

Canada’s economic stability and booming oil sector are drawing attention, writes Jane Roberts

London may be the “safe haven” of choice for wealthy international investors seeking to park cash in property, but it isn’t the only one. Across the pond, Canada is increasingly being seen in a similar light.

In contrast with many other developed countries, including its neighbour the USA, Canada can boast a well-earned reputation for fiscal restraint and economic stability, plus a booming oil sector in Western Canada and historically low interest rates. Throw in property markets with low vacancy rates and limited supply, offering attractive yields over US and Canadian government bonds, and it’s easy to see the attraction.

Encouraged by this scenario, and by large inflows into its existing Canadian real estate fund, Standard Life Investments is market-ing a new fund. It will be Standard Life’s first new pooled property vehicle anywhere in the world for five years.

“Lucky to have been there for a long time” Mike Hannigan, Standard Life’s head of international real estate, says: “We are lucky to have had a business in Canada for a long time. We have a really good team of eight people, based in Toronto and led by Blair McCreadie, and one of our targets this year has been looking at how to access more opportunities there for our UK, European and global clients.”

The existing, open-ended Standard Life Real Estate Fund has been investing in Canada for 29 years. It has grown “considerably”, taking in C$300m in new com-mitments last year, Hannigan says, “and putting $100m into the market this year with another C$200m of assets under offer, including a large office building in Calgary.”

For the first time, the fund has hit over C$1bn of assets and the 101-strong portfolio comprises retail, office and industrial properties in every province. Its core/core-plus and largely ungeared strategy has appealed to a large cohort of domestic municipal and industrial company pension funds.

The fund’s track record should stand the capital-raising teams in Montreal, Toronto and Calgary in good stead. The annualised return over its life is 9.4% with very low volatility and only one negative year, “which looks pretty decent”, as Hannigan says.

The new Canadian Real Estate Fund will have a slightly different strategy. “There will be a bit of leverage, and we are looking to push the weighting into the growth markets of Alberta, British Colombia and Saskatch-ewan, with more of a focus on value add including development. The risk parameters are slightly different,” Hannigan explains.

The target first closing by early 2013 is C$150m. As ever, finding investments of the right quality in what Hannigan says is “a very tightly held market” will be the biggest challenge.

Hannigan took on the international role in 2010 after David Paine was appointed head of property, succeeding Alex Watt. He focuses on all the business outside Europe as well as helping international clients that target Europe. Standard Life has two Canadian clients currently interested in European exposure.

The fund manager’s open-ended €840m European Property Growth Fund was established in 2001 and took in about €150m of new commitments last year. Standard Life also offers the £550m global Select Property Fund. And with 21% of SLI’s £9.9bn of real estate AUM overseas, Hannigan’s job is to develop that business further.

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Slow but steady wins the race for Canada

Canada’s GDP growth is “not knock-out”, Standard Life’s Mike Hannigan says, but it is on track to meet the consensus 2% forecast for 2012, which looks pretty good compared with the weak or recessionary numbers in most other developed economies. Its fate continues to be tied to the USA, where 77% of its exports go; just 4.6% come to the European Union (ex-UK).

Matthew Mowell, Standard Life Investments real estate analyst for the Americas, in a note colourfully titled “The World Needs Canada”, says government bond yields there are at record lows. But, in another parallel with London, so are property market yields, implying that the attractive market fundamentals are already priced into Canadian property. “Thus, the real driver of performance in the near term will be globally minded active investors increasing their allocation to Canadian and US assets,” he says. “This is already occurring.”

Vacancy rates in the main office markets are in the low to mid single digits, below their American counterparts and many European and Asian markets (see chart). Unlike the UK, Canada is not short of debt. The World Economic Forum ranked the country first internationally for the “soundness” of its banking system.

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