Cadim Case

1. Market Entry        

Pension funds face several challenges when investing in a new country. Perhaps the most crucial challenges are political, legislative, environmental, and foreign exchange risk factors. Political and legislative risks might affect investments in similar ways. Changes in government policies, or laws pertaining to higher real estate taxes or restrictions on foreign investments, for instance, would have a negative impact on such investments. Environmental risk factors include the likelihood of natural disasters, such as earthquakes, floods or cyclones, which can cause massive property losses. Possibly the least predictable risk factor of foreign investments is foreign exchange risk, the risk that the investment country’s currency may devaluate against the investor’s home currency. If this occurs, the investor is at risk of losing money, regardless if the project is successful or not.  

CADIM, a real estate division of the Caisse de Dépôt et Placement du Québec (Caisse), aimed at undertaking investments offering the highest return, given its riskiness. Although real estate investments in India and China are generally riskier than similar investments in say the United States or Canada, due to the higher levels of growth in these countries, certain elements are comparatively less risky. Back in 2008, the time CADIM was contemplating investing in India and China, they were the top two fastest growing major economies in the world. With populations upwards of 1 billion, India and China had annual GDP growth rates of 9.2% and 10.7% respectively - the highest in the world. This, coupled with the fact that both these countries lacked in quality properties across all major real estate classes, made them an ideal target for CADIM.  

Once CADIM narrowed its target emerging markets to India and China, the next step was to choose an organization it would collaborate with in its new venture. This decision is extremely crucial, and CADIM extensively evaluated potential partners. They believed that no matter how good an investment seemed, collaborating with a weak partner would ultimately lead to failure. Based on how these large real estate investments are, it is only prudent to take every precaution in deciding whom to entrust. Therefore, CADIM placed a lot of emphasis on potential partner evaluations. In fact, they developed a comprehensive checklist of desirable traits, which they used in the assessment process. These included whether the partner had sufficient experience and connections in the local market, the partner’s history in similar investments, the type of planning and management style the partner utilized, how well the partner’s financial interests aligned with theirs, and the potential for the partner to provide a steady stream of new projects. These are all very important criteria for a potential partner to meet.