For decades, public market equity and fixed income assets dominated most investment portfolios, but for reasons that we describe below, core private market investments now represent a meaningful component of the policy asset mix of many institutional investors. Among other things, core private market investments offer the following features:
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Private market asset classes such as real estate, infrastructure, and commercial mortgages offer a diverse range of domestic and international investment opportunities, with varying return and risk characteristics. By focusing on high-quality investment opportunities available within these asset classes, our flagship private market strategies are designed to provide investors with the building blocks to establish a long-term foundation for their investment portfolios, alongside traditional fixed income and equity investments. The following core principles guide our investment philosophy:
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2025 outlook
After several years of low transaction volume across the Canadian commercial real estate market, sentiment appears to be improving in response to rate cuts by the Bank of Canada, which began earlier this year and are expected to continue into 2025. Despite aggressive Bank of Canada activity, Government of Canada (GoC) bond rates have remained volatile, driven most recently by U.S. trade uncertainty. Stabilization in GoC interest rates should help stimulate real estate market activity as leverage would become supportive and act as a tailwind for activity moving forward. This improved sentiment has already resulted in several notable office transactions recently, and we expect commercial mortgage origination activity will continue to increase from here.
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Our approach
RBC GAM commercial mortgage platform
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* Please refer the ESG disclaimer at the end of the document.
The team focuses on investing in loans that offer attractive reward-for-risk, and benefits from exceptional access across the mortgage market through our market-leading origination network. To support our clients’ investment objectives, our platform offers access across the commercial mortgage risk and return spectrum from conventional to high yield, including strategies that comprise U.S. commercial mortgage-backed securities (CMBS).
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The team typically reviews over $15 billion of mortgage opportunities and invests in $1–1.5 billion annually. Our platform provides access to opportunities, information, and enhanced visibility on risk in a private market where access to information is closely held. The team has a strong market position that benefits from real-time market information sourced from our existing $7 billion portfolio comprised of over 450 loans.1 We employ a disciplined approach to underwriting and continue to target quality properties, borrowers, and sponsors when originating new loans.
1 As at December 31,2024
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2025 outlook
As we look ahead to 2025, the divergence between positive underlying property operating performance and softer capital markets sentiment
that emerged in 2024 has created favourable investment conditions for
well-capitalized investors. Market support is expected to come from further potential cuts to the Bank of Canada’s policy rate, and declining new construction activity; these factors are expected to increase market tightness and support occupancy levels across all sectors.
While population growth is expected to slow in the near-term, we expect the more sustainable long-term rate of growth to remain robust and supportive of the asset class. Meanwhile, key risks to monitor include slowing economic growth and labour market headwinds. In addition, certain investors remain challenged in accessing equity to either fund development commitments or lower leverage levels, reinforcing the value of a low leverage, diverse core asset/core market strategy.
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Our approach
Our core Canadian real estate strategy provides investors with access to a high-quality portfolio of assets diversified by geography, property type, and tenancy. Through its adherence to quality and diversification, the strategy seeks to provide a predictable and growing source of income, and stable total returns over the long term. The strategy is an open-ended investment trust with a quarterly subscription and redemption schedule.
Underpinning the design of our strategy is the belief that an allocation to core Canadian real estate – core assets in core markets with core tenants – can be a foundational element of an investor’s portfolio, working alongside traditional fixed income and equities. The strategy gives investors exposure to the asset class in the most efficient structure possible, eliminating foreign tax, transaction costs, and currency drag, while positioning investors to integrate global exposure through other more liquid asset classes.
The strategy was created through a distinctive partnership with British Columbia Investment Management Corporation (BCI), a leading Canadian pension plan manager in one of Canada’s largest diversified core commercial real estate portfolios. Investors benefit from the collective oversight of two independent professional investment firms in a unique partnership model whereby both firms are economically and reputationally aligned to deliver long-term investment performance.
The strategy’s investment thesis is focused and consistent: hold a diverse portfolio of quality real assets in core locations that will benefit from positive demand and supply characteristics over time; invest in each asset’s modernization; maintain a strong and liquid balance sheet; and commit to high environmental, social, and governance standards.
Unprecedented alignment
A partnership that represents complete economic and reputational alignment between two of Canada’s most respected fiduciaries, RBC Global Asset Management and BCI/QuadReal.
Investment discipline
Aligned investment and asset management decision-making provides discipline, focus, and access to off-market opportunities.
Fully diversified
Access to an established portfolio of signature properties across Canada’s largest cities, diversified by asset class, geography, and tenancy.
Governance & sustainability
Combined oversight provides exceptional governance and consistent industry-leading ESG results.
Core portfolio
Core portfolio
2024 market review
Investment activity in private infrastructure was relatively muted for much of 2024 and equity return requirements appeared to rise slightly over the course of the year. The decline in investment activity and rise in return requirements was a function of many factors, including: a higher cost of capital, elevated capital expenditure requirements due to inflation, tighter labour markets, residual supply chain issues, and increased uncertainty around revenue forecasts given the heightened risk of an economic slowdown.
The resulting scarcity of capital created opportunity for those investors with capital available to deploy. A small number of very large fundraising outcomes for certain fund managers led to intense competition for a few mega-infrastructure deals even as we were seeing less competition in the mid-cap infrastructure space. As a result, we saw an increase in the expected risk/return profile of certain mid-cap opportunities.
We also observed several large institutional investors seek out experienced and aligned partners to support future growth in their private infrastructure investments, as they approached their internal portfolio concentration limits. This brought a set of high-quality investment opportunities to the market alongside strong potential co-investment partners.
Each of these factors contributed to what many are speculating will be a good vintage year for buyers of private infrastructure companies.
Infrastructure investments, supported by strong fundamentals
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2025 outlook
Lower lending rates in response to easing inflation have led to the expectation of increased transaction flow in the year ahead, as investors see the opportunity to use financial leverage to fund transactions. While increased appetite for leverage should act as a tailwind for investment activity going forward, investments with more defensive profiles – including strong financial quality (relatively low amounts of predominantly fixed rate debt) and inflation-protected yield – will continue to present the most compelling opportunities, in our view.
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Our approach
Our global infrastructure strategy aims to provide investors with attractive risk-adjusted returns comprised of income and capital appreciation. The strategy invests in a portfolio of core and core+ private infrastructure assets diversified by sector and geography, with a focus on developed market countries included in the Organization for Economic Co-operation and Development (OECD).
A focus on developed markets provides benefits of stable economic growth, positive demographic trends, yields underpinned by contractual income, and inflation sensitivity. The strategy can also offer exposure to positive environmental, social, and governance themes (infrastructure 2.0), as we seek investments that support economic development, enable higher standards of living, and drive the transition to a more sustainable future.
The strategy is open ended to align investor capital with the long asset lives of private infrastructure assets. The strategy is actively managed by the RBG GAM Private Markets Global Infrastructure Investment team and leverages the internal support of RBC GAM’s investment and operational platform as well as the external support of experienced and aligned co-investment partners and advisors.
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The strategy benefits from proprietary (and often non-competitive) access to a broad range of unique and high-quality investment opportunities. This access is attributable to:
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This broad range of high-quality deal flow gives the team a wide opportunity set to select from, and allows them to capitalize on situations where there may be gaps in the supply and demand for capital in certain segments of the infrastructure market.
The strategy’s focus remains on building a globally diversified portfolio of high-quality core/core+ private infrastructure assets alongside experienced and aligned co-investment partners. With low-leverage and a strong pipeline of investment commitments, we are entering 2025 in a position of strength to deploy capital into a capital-constrained environment. We are actively considering a broad set of potential transactions that have near-term execution timelines, and we continue to see additional new deal flow every quarter driven from existing and new co-investment partners. As we consider portfolio construction and diversification within the strategy, the addition of two new investments in 2024 brought attractive diversification benefits to the portfolio by sector, geography, value driver, and co-investment partner. Going forward, we are prioritizing additional sectors and value drivers to enhance the diversification of the strategy.
Thank you for your interest in our perspectives. We hope this document serves as a useful reference, and your portfolio managers welcome the opportunity of further discussion with you.