CDPQ to Integrate its Real Estate Subsidiaries
The Caisse de dépôt et placement du Québec (CDPQ) has become the latest major Canadian investor to initiate a dramatic realignment of its real estate holdings, announcing Wednesday that Ivanhoé Cambridge and Otéra Capital will become investment groups within its holdings.
Although both Ivanhoé Cambridge and Otéra will retain their respective brands within the marketplace, the corporate services teams will be integrated with CDPQ’s teams. This is forecast to save up to $100 million in annual expenses, and will also result in the departure of Ivanhoé Cambridge president and CEO Natalie Palladitcheff when the integration is complete in 18 to 24 months.
"This integration stems from a vision of an integrated CDPQ that maximizes its impact and performance to offer our depositors the best service for the most efficient cost” Charles Emond, president and chief executive officer of CDPQ, said in the announcement. “It allows us to further leverage our subsidiaries' deep real estate expertise and the best talent in corporate services from all three organizations to execute our strategy and position CDPQ well for the future.
“We want to work as one team — one CDPQ — and build on the unique know-how of our talent to create value for our depositors.”
Integration to begin next week
The integration of the real estate subsidiaries will begin on January 29, with the corporate services teams beginning to report to CDPQ next week. The corporate services teams support the investment groups' activities in areas including finance, operations, digital technology, human resources, legal affairs, communications and risk management.
The subsidiaries' investment teams will then become CDPQ investment groups on April 29, and will continue to conduct their activities in the market under their respective brands, Ivanhoé Cambridge and Otéra Capital.
In addition to the expected efficiency gains, CDPQ states the benefits of integrating the real estate subsidiaries include:
- increasing focus on investment expertise;
- maximizing business relationships and partnerships;
- consolidating global presence across all asset classes and seeking investment integration opportunities;
- harmonizing governance;
- strengthening analytical capacity;
- optimizing corporate services; and
- providing richer opportunities for talent development and mobility.
As part of the integration, CDPQ will acquire all the interests held by minority shareholders of Ivanhoé Cambridge and Otéra Capital, becoming the sole shareholder.
Palladitcheff to leave organization
Upon closing of that transaction, the governance of the real estate subsidiaries will be integrated into CDPQ and Palladitcheff will depart the organization.
"Since joining CDPQ, Nathalie has distinguished herself by her vision and strong leadership, which allowed her to take Ivanhoé Cambridge even further,” said Emond in the announcement. “The context in which she executed her mandate was marked by the dual challenge of the atypical environment caused by the pandemic and the profound transformation of the real estate sector.
“Nathalie accomplished a lot for CDPQ and our depositors by leading the transformation of the Ivanhoé Cambridge business model and by repositioning the portfolio toward promising sectors with her teams," Emond said in the release. "I would like to sincerely thank her for her continuous support and important contributions to achieving our strategy."
The appointment of a new leader for the real estate investment group is to be announced by the end of the transition period.
"Over four years ago, we began to significantly transform Ivanhoé Cambridge during a period of profound change in our industry,” Palladitcheff said in the announcement. “I'm very proud of the colossal work accomplished with my teams and our portfolio is well positioned for the future. Being able to put all our energies into our core profession—our real estate expertise—will be decisive for creating value in an environment that continues to be complicated.
"My transformation mandate will conclude at the end of the transition period, in which I will be fully engaged.”
Otéra president and CEO Rana Ghorayeb will continue to oversee the investment group and sit on the CDPQ executive committee after the transaction and integration.
"Otéra Capital has evolved tremendously in recent years, particularly by growing our portfolio and diversifying our products and markets. We also multiplied collaboration opportunities in all sectors with our colleagues in the CDPQ group, which has greatly contributed to these advances made by our teams. This integration will allow us to continue moving in the same direction and to further leverage the expertise and strength of the entire CDPQ group," Ghorayeb said in the announcement.
The move follows a similar initiative by Ontario Teachers' Pension Fund, announced last June.
It is splitting its real estate subsidiary Cadillac Fairview into two entities under a new operating model. That move led to the retirement of longtime president and CEO John Sullivan. Ontario Teachers' established an in-house real estate group to oversee its real estate investment activities.
Earlier today, CDPQ issued this press release announcing the integration of its real estate subsidiary:
To support its strategy and optimize its activities, CDPQ today announced that it will integrate its real estate subsidiaries, Ivanhoé Cambridge and Otéra Capital. This decision is in line with the evolution of the real estate subsidiaries and numerous initiatives launched within the CDPQ group in recent years to implement best practices and achieve efficiency gains for CDPQ and its depositors.
The integration of the real estate subsidiaries will begin on January 29, 2024, and conclude within 18 to 24 months. The corporate services teams will report to those at CDPQ starting next week. The corporate services teams support the investment groups’ activities on a daily basis, and include, for example, the finance, operations, digital technology, human resources, legal affairs, communications and risk management teams.
The subsidiaries’ investment teams will also become CDPQ investment groups starting on April 29, 2024, and will continue to conduct their activities in the market under their respective brands, Ivanhoé Cambridge and Otéra Capital. The subsidiaries’ investment partners and clients will pursue their business relationships in the normal course of activities.
In addition to the efficiency gains that are expected, the benefits of integrating the real estate subsidiaries into CDPQ are numerous, including:
- Increasing focus on investment expertise
- Maximizing business relationships and partnerships
- Consolidating our global presence across all asset classes and seeking investment opportunities that integrate them even more
- Harmonizing governance and increasing its effectiveness
- Strengthening analytical capacity
- Optimizing corporate services to benefit from the best talent and best practices of the three organizations
- Providing richer opportunities for talent development and mobility
At the conclusion of the integration—in the next 18 to 24 months—CDPQ expects to generate annual savings of around $100 million through the synergies achieved in its processes, resources and systems.
“This integration stems from a vision of an integrated CDPQ that maximizes its impact and performance to offer our depositors the best service for the most efficient cost. It allows us to further leverage our subsidiaries’ deep real estate expertise and the best talent in corporate services from all three organizations to execute our strategy and position CDPQ well for the future. We want to work as one team—one CDPQ—and build on the unique know-how of our talent to create value for our depositors,” said Charles Emond, President and Chief Executive Officer of CDPQ.
“In recent years, Ivanhoé Cambridge has gradually transformed from the dual role of operating properties and making investments into an organization focused on its primary vocation—investing. Combining our abilities with those of the CDPQ group is the logical next step of this evolution, which will allow us to focus on what we do best—investing in real estate around the world. In a highly complex and competitive environment, the strength of the Ivanhoé Cambridge brand will be put to use in a more integrated way within CDPQ to benefit depositors,” noted Nathalie Palladitcheff, President and Chief Executive Officer of Ivanhoé Cambridge.
“Otéra Capital has evolved tremendously in recent years, particularly by growing our portfolio and diversifying our products and markets. We also multiplied collaboration opportunities in all sectors with our colleagues in the CDPQ group, which has greatly contributed to these advances made by our teams. This integration will allow us to continue moving in the same direction and to further leverage the expertise and strength of the entire CDPQ group,” added Rana Ghorayeb, President and Chief Executive Officer of Otéra Capital, who will continue to oversee the investment group and sit on the CDPQ Executive Committee.
Leadership and governance transition
As part of this integration, CDPQ will acquire all the interests held by minority shareholders in the share capital of Ivanhoé Cambridge and Otéra Capital, thereby becoming the sole shareholder.
Upon closing of the transaction to acquire the shares held by minority shareholders at the end of April, the governance of the real estate subsidiaries will be integrated into CDPQ. Nathalie Palladitcheff has decided to leave the CDPQ group when the transition period is concluded.
“Over four years ago, we began to significantly transform Ivanhoé Cambridge during a period of profound change in our industry. I’m very proud of the colossal work accomplished with my teams and our portfolio is well positioned for the future. Being able to put all our energies into our core profession—our real estate expertise—will be decisive for creating value in an environment that continues to be complicated,” said Nathalie Palladitcheff, President and Chief Executive Officer of Ivanhoé Cambridge.
“My transformation mandate will conclude at the end of the transition period in which I will be fully engaged. I would like to thank Charles for his trust and backing throughout this evolution, all of my teams for their deep commitment and my colleagues at CDPQ for their collaboration. On this journey we have taken together, we have always kept our depositors first in mind, because Ivanhoé Cambridge is an integral part of CDPQ. I’m privileged to have been able to make a contribution to this great institution,” she added.
“Since joining CDPQ, Nathalie has distinguished herself by her vision and strong leadership, which allowed her to take Ivanhoé Cambridge even further. The context in which she executed her mandate was marked by the dual challenge of the atypical environment caused by the pandemic and the profound transformation of the real estate sector. Appointed to lead our respective organizations within a few months of each other, we built a strong relationship based on trust and navigated these circumstances with a shared mindset: make courageous and demanding decisions. Nathalie accomplished a lot for CDPQ and our depositors by leading the transformation of the Ivanhoé Cambridge business model and by repositioning the portfolio toward promising sectors with her teams,” said Charles Emond, President and Chief Executive Officer of CDPQ. “During our discussions about the integration project, Nathalie shared with me her decision to leave our organization following the transition period. I would like to sincerely thank her for her continuous support and important contributions to achieving our strategy.”
The appointment of a new leader for the Real Estate investment group should be announced by the end of the transition period to ensure a gradual and orderly leadership transfer.
ABOUT CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2023, CDPQ’s net assets totalled CAD 424 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.
Never a dull day at Pension Pulse, I can tell you that much.
Just yesterday I covered how Ivanhoé Cambridge and LOGOS will invest in Chakan Industrial Estate and this morning I received an email with this huge restructuring.
So what is going on here? Why is CDPQ internalizing Ivanhoé Cambridge and Otéra Capital?
Are they doing it because Ontario Teachers' decided to bifurcate Cadillac Fairview and internalize global real estate investments?
No, it has nothing to do with Teachers' decision where CEO Jo Taylor told me the global real estate team will benefit from Teachers' brand.
The press release clearly states that once this integration is completed, these subsidiaries will continue to conduct their activities in the market under their respective brands, Ivanhoé Cambridge and Otéra Capital.
It also lists the reasons why they are doing this very clearly:
In addition to the efficiency gains that are expected, the benefits of integrating the real estate subsidiaries into CDPQ are numerous, including:
- Increasing focus on investment expertise
- Maximizing business relationships and partnerships
- Consolidating our global presence across all asset classes and seeking investment opportunities that integrate them even more
- Harmonizing governance and increasing its effectiveness
- Strengthening analytical capacity
- Optimizing corporate services to benefit from the best talent and best practices of the three organizations
- Providing richer opportunities for talent development and mobility
At the conclusion of the integration—in the next 18 to 24 months—CDPQ expects to generate annual savings of around $100 million through the synergies achieved in its processes, resources and systems.
Now, I did reach out earlier to CDPQ CEO Charles Emond to tell him I'd be covering this and if he has anything to add, to let me know (his communications team said they will not add anything else).
I am going to go a step further here and give you my reasons why this integration of all real estate activities is long overdue and necessary.
First and foremost, and Charles points this out, it's not about Ivanhoé Cambridge and Otéra Capital, it's al about ONE CDPQ!!
Under ONE CDPQ, everyone will work for one organization and share
information a lot more freely (you have to break down those bloody
silos).
I'm sick and tired of subsidiaries peddling themselves and promoting their executives on LinkedIn.
Importantly, you're not working at Ivanhoé Cambridge and Otéra Capital, you're really part of something much, much bigger called CDPQ and I don't care if it's women or men, stop promoting people on LinkedIn as if they're independent from CDPQ, they're not (the depositors pay their salaries and bonuses).
When is the last time you saw anyone at CPP Investments or PSP Investments' Real Estate group being promoted on social media? Never and the same goes for other funds with a small exception of Oxford Properties which manages outside money so they need to promote their workforce to a certain extent.
I'll come back to Oxford below.
The second reason I think integration of the real estate activity is critical at CDPQ is risk integration.
I'm very skeptical of having individual subsidiaries with their own risk and valuation teams valuing assets as they see fit and presenting data to the mother pension fund as they see fit.
FINITO! None of that, as the press release states, the corporate services teams at Ivanhoé Cambridge and Otéra Capital will report to those at CDPQ starting next week.
These teams support the investment groups’ activities on a daily basis, and include, for example, the finance, operations, digital technology, human resources, legal affairs, communications and risk management teams.
Now, clearly to save $100 million a year as the press release states, duplication of administrative functions will be eliminated.
Unfortunately that means a lot of high paying administrative jobs will necessarily be cut, there's no way around this.
Not exactly good for Montreal or Quebec's economy but still necessary and it will strengthen Quebec's pension fund over the long run.
I'm actually surprised Michael Sabia, the former CEO and now CEO of Hydro Quebec, never thought of doing this integration but at the time, he had bigger fish to fry including cleaning up the internal house which was in disarray and Otéra Capital which was plagued by scandals.
The third reason why I'm all for this integration is there is a secular/ transformational shift going on in real estate and you can deny it all you want but it's here to stay.
That means now more than ever you really need to be on top of this asset class, and I mean everything from valuations to risk to you name it because as Charles states in the press release, the environment for real estate has dramatically shifted since the pandemic erupted.
Of course real estate remains an important asset class, nobody is denying this, but the easy days in real estate are long, LONG gone!
Now more than ever you really need experienced teams who understand how to value and rework assets and work with the best partners to generate value add in this asset class.
And on top of that sustainability will remain an overarching theme in real estate.
Now, what about Nathalie Palladitcheff's decision not to stay on to lead the Real Estate team once this integration is finalized?
I can't say I'm surprised because it is a major overhaul and maybe she wasn't onboard with every decision being taken (don’t know for sure but seems strange to me she decided to leave after integration is completed).
I don't have anything negative to say about Ms.Palladitcheff, I enjoyed my discussions with her and she definitely was ahead of the curve on sustainability.
She also finalized transformational shifts in that massive real estate portfolio, investing more in logistics and multifamily across the world.
Sure, there was a bit too much promotional stuff on LinkedIn which wasn't really necessary and she got rid of some very experienced real estate executives too but she did lead this organization through tough times and deserves all the credit there.
Having said this, I expect all real estate portfolios to sustain a hit in 2023 because in 2022 publicly traded REITs got clobbered, so valuations will come down and there will be writedowns.
CDPQ will be among the first large Canadian pension funds to report so I will look at real estate closely.
Whatever the case of how well or poorly they performed last year, the truth is Ivanhoé Cambridge and Otéra Capital have very good people working at all departments, administrative, risk and other functions.
The tough part of an integration is making sure you keep top performers and letting go of underperformers.
The other harsh reality is we are heading into a really bad global recession which is why this integration can't occur soon enough.
You really need all hands on deck when a global recession strikes and you need leaders who can break down the silos across asset classes.
Communication and risk integration are paramount in the environment we are heading into.
That brings me to another topic, it's high time CDPQ hires or promotes a CIO in charge of public and private markets (it's my opinion, you can disagree with me).
What else? What about CDPQ Infra? Why wasn't it integrated into CDPQ as well?
Well, to be honest, I'm not sure what the future holds for CDPQ Infra once the REM project is finalized.
They are bidding on a few projects but nothing is for sure and they can't seem to hire the right people to export the REM project all over the world.
Again, great organization with a great leader (Jean-Marc Arbaud) which delivered an amazing REM to the province of Quebec under extraordinarily difficult political circumstances but the future of CDPQ Infra is precarious which is why many executives have left that organization over the last three years.
Emmanuel Jaclot and his investment team will continue to invest in infrastructure all over the world with world-class partners but that's another team altogether.
Lastly, let me wrap things up by stating this, in my opinion, all of Canada's pension funds should follow CPP Investments, PSP Investments, AIMCo, HOOPP, IMCO and now OTPP and CDPQ and integrate their real estate departments internally for the all the reasons cited above.
The only exception I can think of is OMERS where Oxford Properties, OMERS Infrastructure, OMERS Private Equity actually manage third party money but even that is debatable.
I know OMERS CEO Blake Hutcheson has rejigged his executive team to have the leaders of these organizations sit on it but maybe more needs to be done if it makes sense.
What about BCI and QuadReal? Well, I'm sure BCI's CEO Gordon Fyfe is reading this as are the depositors there and thinking the same thing, why do we need a separate real estate subsidiary at BCI?
Alright, I've shared more than enough here, if you have anything pertinent to add, just email me at LKolivakis@gmail.com (and again, a lot of what I've written are my opinions and have thicker skin than you can imagine, so let me have it if you totally disagree with me).
Below, when it comes to commercial real estate, a lot of attention is obviously paid to offices, but it's not the only sector facing strains. Apartment buildings — or multifamily residential — may also be in for trouble.
For years, rates were falling and rents were rising, and owning and operating apartments was a moneymaker. Then things went into overdrive with the pandemic, thanks to plunging rates, surging rents, and an explosion in new household formation.
But all of that is reversing. Rates have surged. Insurance costs have surged. Operating costs have surged. The household formation boom didn't last. And in some areas of the country — particular in some Sun Belt markets — rents are actually falling.
On this episode of Odd Lots, they speak with Lee Everett, vice president of research and strategy at Waterton, on how a multi-family deal binge in 2021 will result in a huge hangover.
Update: La Presse reports that most of the employees affected will learn their fate from now till the end of April. I suspect it will impact employees at CDPQ too, not just the real estate subsidiaries but I cannot confirm any of this.
Someone asked me why it will take two years before CDPQ realizes $100 million savings a year and the answer is because when you restructure and let go of people, by law you need to provide a fair severance package depending on how long an employee was working at an organization and other factors.
So, initially it will cost CPDQ to restructure and once the severance packages are doled out, they can focus on integration and efficiency gains.
Once the integration is completed, they can turn the page and focus on their respective real estate estate portfolios.
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