NEW YORK -- Caisse de depot et placement du Quebec, one of the world's biggest real estate investors, is holding off on major investments in London real estate amid uncertainty over the impact of Britain's planned exit from the European Union.

Canada's second-biggest public pension fund has been an enthusiastic investor in Britain and earlier this year agreed to finance the expansion of London's Heathrow airport in which it is one of the biggest shareholders.

Until recently, London was one of the cities the Caisse was most committed to investing in along with New York and Shanghai.

"That is still certainly true for Shanghai, true for New York," Caisse Chief Executive Michael Sabia told Reuters in an interview on Wednesday.

However, the Caisse has turned more cautious on Britain's capital after Prime Minister Theresa May lost her majority in a parliamentary election in early June, giving her a weaker hand in negotiating Britain's exit from the EU.

"We're pretty cautious right now about making meaningful and significant investments in London real estate," Sabia said.

The Caisse has not seen any impact yet on valuations of its existing real estate portfolio in London which is primarily in high-end office buildings. However, Sabia said valuations of less desirable properties were being affected.

"The question is how far does this go, does it spread? That is why we're being careful until we have a better sense."

Sabia also said Britain's economy, which initially withstood the shock of the Brexit vote, was starting to hurt.

"I think you're going to see slowing in the U.K. as the reality of Brexit begins to affect decision making more, I think we're already seeing some of that."

The Caisse, which manages public pensions for retirees in Quebec, has a duel mandate both to maximize returns for depositors and support economic growth in the Canadian province.

A US$1.5-billion investment in Bombardier (BBDb.TO), headquartered in Quebec, has been slammed by U.S. rival Boeing (BA.N) as an unfair subsidy but Sabia rejected that characterization as "absolute nonsense" on Wednesday. 


Caisse is embarking this year on the construction of the world's third-biggest public transit system in its home city of Montreal, a groundbreaking project which will see the pension fund take responsibility for both the funding and construction.

The $6-billion project, which has also received funding from the Quebec government and Canada's federal government, is seen as a test case by other pension funds which normally prefer to invest in "brownfield" infrastructure that has already been built rather than take on the construction risk through a "greenfield" project.

But competition for assets such as roads, bridges and tunnels that have already been built has intensified as investors look for alternatives to low-yielding government bonds and volatile equity markets.

Sabia said he believes the Caisse will have an advantage over rivals from developing the skills in-house to manage the construction of new infrastructure and wants to replicate the model in the United States and Europe if it succeeds.

He also argued that much infrastructure development falls between the two, citing Heathrow Airport, where the infrastructure is being expanded, labeling them "khaki" projects.

"You've got to have the capacity to work across that spectrum, to have a full product offering is something that's going to differentiate yourself in the market." 

The Caisse invests money on behalf of workers and retirees in the province of Quebec and Sabia admitted that there would be reputational risk if money was lost on the Montreal transit project.

"Doing things differently and some degree of innovation always comes with some risk. If those reputational issues are so big in your mind then you're condemned to live in the status quo for ever.

"In an investment world that's changing as much as we think it is changing, staying in the status quo means you're toast."