The British Columbia Investment Management Corporation (bcIMC) today announced an annual combined pension return, net of costs, of 12.4 per cent for the fiscal year ended March 31, 2017, versus a combined market benchmark of 11.7 per cent. This generated $680 million in added value for bcIMC's pension plan clients.At last, we get bcIMC's results so we can close out the year in terms of reporting the performance of all of Canada's large public pensions.
Infrastructure, private equity, real estate, and renewable resources outperformed for the calendar (error: fiscal) year and delivered above-benchmark returns. Tactical decisions to underweight fixed income in favour of public equities provided value-added returns. A key contributor was the outperformance of global equities relative to their benchmark. In a low return environment for fixed income, the decision to underweight nominal bonds added value and was further enhanced by outperformance relative to the benchmark. Strong performance in illiquid asset investments also provided value-add.
"I am proud of the bcIMC team and the strategic investment decisions they made to generate $680 million in additional value, as well as deploying new capital into long-term investments. This is a significant contribution to securing our clients' financial futures," said Gordon J. Fyfe, bcIMC's Chief Executive Officer and Chief Investment Officer. "Although annual returns provide us with a short-term perspective, it is the longer term that matters. Over the twenty-year period, we have exceeded their actuarial return requirements and have added $7.7 billion in cumulative value add."
Fiscal 2017 Highlights"We are required to work in our clients' best financial interests, and it influences our strategies, asset selection, and operations," said Fyfe. "bcIMC's new investment model emphasizes a greater degree of active management over indexing strategies, and creating new and diversified sources of market return and active return to increase the probability of meeting our clients' actuarial rate of return."
- Committed $9.9 billion to illiquid assets— infrastructure, mortgages, private equity, and real estate
- Established QuadReal Property Group, a real estate asset and property manager 100 per cent owned by bcIMC
- Transitioned $2.8 billion of externally managed public equity funds to bcIMC
- Raised $750 million in debt financing for our real estate program
- Expanded the team by 74 and added expertise in asset management, data governance, derivatives, illiquid assets, portfolio management, quantitative analysis, and tax
bcIMC's operating costs were 24.2 cents per $100 of net assets under management; compared to 23.7 cents in fiscal 2016. Costs incurred on our behalf by third parties and netted against investment returns are not included in operating costs. Our strategy refocuses bcIMC to become an in-house asset manager that uses sophisticated investment strategies and tools. By increasing the percentage of assets managed by bcIMC's investment professionals, we will transition from a reliance on third parties to a more cost-effective model of managing illiquid assets.
In fiscal 2017, bcIMC increased our managed net assets to $135.5 billion, an increase of $13.6 billion from the previous year. bcIMC's asset mix as at March 31, 2017 was as follows: Public Equities (48.3 per cent or $65.5 billion); Fixed Income (19.2 per cent or $26.0 billion); Real Estate (13.5 per cent or $18.2 billion); Infrastructure (8.1 per cent or $11.0 billion); Private Equity (5.8 per cent or $7.8 billion); Mortgages (2.1 per cent or $2.9 billion); Other Strategies–All Weather (1.5 per cent or $2.1 billion); and Renewable Resources (1.5 per cent or $2.0 billion). bcIMC's 2016–2017 Annual Report is available on our website at www.bcimc.com.
About bcIMC
With $135.5 billion of managed assets, British Columbia Investment Management Corporation (bcIMC) is a leading provider of investment management services to British Columbia's public sector. We generate the investment returns that help our institutional clients build a financially secure future. With our global outlook, we seek investment opportunities that convert savings into productive capital that will meet our clients' risk/return requirements over time. We offer investment options across a range of asset classes: fixed income; mortgages; public and private equity; real estate; infrastructure; and renewable resources.
You should note there is only one blogger in the world who properly covers the results of large Canadian pensions. Let's briefly recap the performance of Canada's large pensions:
- La Caisse Gains 7.6% in 2016 (calendar year results)
- OMERS Gains 10.3% in 2016 (calendar year results)
- HOOPP Gains 10.4% in 2016 (calendar year results)
- OPTrust Is Changing the Conversation (calendar year results)
- Ontario Teachers' Gains 4.2% in 2016 (calendar year results)
- CPPIB Gains 11.8% in Fiscal 2017 (fiscal year ends March 31st)
- PSP Investments Gains 12.8% in Fiscal 2017 (fiscal year ends March 31st)
- AIMCO Gains 5.8% in 2016 (calendar year results)
But with the arrival of Gordon Fyfe three years ago, the focus has shifted to private markets in a meaningful way. In fiscal 2017, bcIMC committed $9.9 billion to illiquid assets— infrastructure, mortgages, private equity, and real estate. That is a huge shift into private markets.
In order to do this properly, Gordon hired Jim Pittman, formerly of PSP, to be the SVP of Private Equity at bcIMC. Lincoln Webb is the SVP of Infrastructure and Renewable Resources and Dean Atkins is the SVP Mortgage and Real Estate Investments. Together, these three indivduals are responsible for private market investments.
Now, I want you all to take the time to read bcIMC's Annual Report for 2016-2017 which is avaliable here. You can begin by reading the Chair's Message and then the Report from the CEO/ CIO. The entire Annual Report is well written and contains most of the pertinent information for my analysis below.
First, let me begin with the table below from page 3 of the Annual Report which shows a profile of assets under management as of the end of March (click on image):
When I look at this table above, I see the weighting in Private Equity (5.8%) is well below its peer group. Jim Pittman is going to be in charge of ramping up operations in this asset class and his team was very busy in fiscal 2017.
Second, the table below from page 15 of the Annual Report provides a summary of returns by asset class for bcIMC's combined clients (click on image):
As you can see by looking at one-year results, the bulk of the outperformance in fiscal 2017 came from Fixed Income, Mortgages, Global Public Equity, Private Equity and Infrastructure. Real Estate and Renewable Resources also outperformed in fiscal 2017. Lastly, the All Weather strategy (Bridgewater) also outperformed in fiscal 2017, earning 14.3%, well above its benchmark of 9.8%.
I will let you read the notes of each asset class in the Annual Report, but I note below the activities in Private Equity and Infrastructure which are is described on pages 20 and 21 of the Annual Report (click on images):
The results for fiscal 2017 are excellent and it's important to note all asset classes contributed to these results (public and private) but going forward, it's clear the focus will primarily be on private markets to deliver the added-value and attain and surpass the actuarial target rate of return over the long run.
Below, as I customarily do when I go over results of large Canadian pensions, I provide you with the summary compensation table of bcIMC's five senior officers (click on image):
As always, keep in mind that compensation is based on long-term results, something Gordon Fyfe rightly emphasized in his Report from the CEO/ CIO. Gordon also mentioned this in his message:
In 2016—2017 we saw the retirement of Paul Flanagan, who led our fixed income & foreign exchange department for the past 11 years. We wish him all the best in this new chapter of his life. Chris Beauchemin, who has been with bcIMC since 1989, stepped into the position as acting senior vice president, fixed income & foreign exchange. Jim Pittman joined and leads our private equity department and Lawrence Davis also joined to lead our finance department.One final note on compensation at bcIMC. A friend of mine who worked at BC Hydro told me that public sector compensation in British Columbia is "abysmal". He also told me "Gordon is going to have a hard time convincing his board and the government apparatchiks that they need to improve comp at bcIMC'.
I told him not to underestimate Gordon and the truth is bcIMC needs to improve its compensation at all levels for all sorts of reasons, chief among them is they need to attract and retain qualified people to do all sorts of sophisticated strategies across public and private markets. You need to pay for skill and this is in the best interests of bcIMC's contributors and beneficiaries.
Lastly, I did reach out to Gordon to gain more insights on bcIMC but his assistant Maria told me he's away on business (the old Gordon would have called me right away no matter where he was).
I was also happy to hear that my old colleague from PSP, Mihail Garchev, landed on his feet and is now working at bcIMC doing very similar work that he was doing at PSP.
I hope that Gordon, Mihail and Jim (Pittman) are all doing well and congratulate all of bcIMC's employees for a great fiscal year. Keep up the great work.
One last critical point, just like AIMCo, bcIMC flies too low under the radar and needs to significantly improve its communication. The leaders at both these large public pensions are smart and articulate, there is simply no good reason as to why they shun the media and don't give interviews to Bloomberg and other media just like their counterparts out east regularly do.
Proper communication is pension governance 101. PSP's CEO, André Bourbonnais, was absolutely right when he said: "If you don't take control of your brand and communication, someone else will." I wholeheartedly agree and I'm glad PSP is more active on social media, more present in traditional media and more engaged with its community.
On that note, a lot of people in British Columbia are struggling as wildfires rage in that province, wreaking havoc on communities and displacing thousands from their home. Below, a recent report from the CBC's The National. The Globe and Mail posted an article on how to help here.