In 2008, OPTrust completed a multi-year strategy to increase the size of the Plan’s real estate portfolio to 10% of the Total Fund.

There are several reasons for increasing the Plan’s allocation to real estate:

• There is generally a lower correlation between the performance of real estate and that of the public stock and bond markets, where most of the Plan's assets are invested. Real estate investments are therefore expected to respond differently to economic cycles than stocks or bonds. As a result, real estate offers the prospect of more stable returns in periods when stock and/or bond markets perform poorly.
• Real estate also tends to be highly correlated with inflation over time, providing an excellent match with the cost of retirees’ pensions, which increase annually to keep pace with inflation.
• Real estate can also be expected to generate a steady stream of income that can be used to make ongoing pension payments.

Real estate strategy
OPTrust’s real estate strategy includes holding a variety of investments that provide diversity by property type, geographical location, manager and investment style. Investments are identified, screened, purchased and monitored on an ongoing basis by portfolio managers in our internal Real Estate Group, with the assistance of external investment managers.

Our Canadian portfolio consists of office, retail, industrial and multi-residential properties that are owned directly by the Plan. OPTrust has also invested in a number of Canadian and international pooled real estate funds.

At the end of 2008, our real estate portfolio had reached 11.9% of the total fund, with a net market value of $1.3 billion.

Case study: Real estate

In 2007, OPTrust acquired the first major office tower to open in downtown Calgary since 2001, located at 607 8th Avenue SW. Under a privately negotiated “forward purchase agreement,” the 14-storey building was fully leased when OPTrust assumed ownership. OPTrust was therefore able to avoid development risks while maximizing value to the Plan, capitalizing on the strategic advantages created by our in-house Real Estate Group.