bcIMC Up 16.3% in 2009-2010

Living in Montreal, I tend to focus way too much on Quebec and Ontario based funds. I was skimming through BC Investment Management Corporation's (bcIMC) website today and saw they posted their 2009-2010 Annual Report.

bcIMC doesn't get a lot of press coverage but they're one of the largest public pension funds in Canada and have performed well over the long-run sticking to sound principles. I briefly covered their 2008-2009 results last year in my post on cleaning up pension funds, and mentioned the following:

How did it perform in 2008-2009? From the annual report, we see that they lost 14.6% in 2008-2009 relative to their benchmark of -11.1%. In other words, they underperformed their benchmark by 3.5%, which is considerable, but their overall results are among the best of the large funds. Interestingly, bcIMC which is known to be "less sophisticated' than its counterparts in Canada, managed to lose a lot less than most of them and its senior managers didn't get paid anywhere near as well as most of their counterparts out east (not that they got paid badly either after losing billions).

Just like PSPIB and CPPIB, which I recently compared in terms of their FY 2010 results, bcIMC's fiscal year ends on March 31st.

So how did bcIMC perform in 2009-2010? Doug pearce, bcIMC's President & CEO went over the results in his message in the 2009-2010 Annual Report (p. 14):

The last decade has been very challenging from an investment perspective. For the 10 years ending March 31, 2010, bcIMC’s combined pension return was 4.6 per cent on an annualized basis. Despite this challenging market environment, I am pleased that bcIMC’s activities contributed $979 million in additional value over our clients’ combined benchmark of 4.3 per cent, net of all investment management fees.

In looking specifically at the investment returns for 2009-2010, clients benefitted in the shorter term from a stronger than expected recovery in capital markets. The one-year annual return net of fees, for our combined pensions was 16.3 per cent. While clients had solid results, bcIMC unfortunately did not meet our clients’ combined benchmark of 17.3 per cent. Although many of our public equities, fixed income and mortgage funds outperformed their benchmarks, our real estate portfolio detracted from the returns. Declines in real estate valuations typically lag publicly traded investments and the 2009-2010 economic downturn drove property valuations lower, even though income levels (rents) were fairly stable and vacancy rates remained low. I am not concerned; real estate is a long-term asset and we have a sound portfolio of quality properties that over a 15-year period, has exceeded its benchmark by 4.1 percentage points. We anticipate that it will take another year for the value of the portfolio to recover.

This past year saw a number of highlights beyond the investment returns. We introduced the Active Global Equity Fund and the Global Government Bond Fund, and expanded our currency hedging program to include the euro. These product offerings will provide clients with greater exposure to global markets while providing opportunities to manage currency fluctuations.

We maintained our ongoing commitment to responsible investing by participating in industry-related initiatives such as the Mercer’s Climate Change and Asset Allocation study and the Prince of Wales’ P8 Group Climate Solutions Investments Made to Date project. We also endorsed the Institutional Limited Partners Association’s (ILPA) Private Equity Principles that addresses governance practices and transparency within the private equity sector. Instituting our new Mortgage Risk Rating system was another noteworthy initiative; properties with energy conservation initiatives will be identified and rewarded with a more favourable credit risk rating.

As shown in the table below, Private Placements and Real Estate underperformed their benchmarks (click on image to enlarge):

Again, as I mentioned last year, their benchmark for Private Placements is a tough one to beat, much tougher than most other comparable funds. And I am not sure a spread over a Canadian small cap index is appropriate given that the portfolio is invested in large buyouts around the world.

And even though the 2009-2010 results didn't beat the combined benchmark of 17.3%, they were better than CPPIB's return of 14.9% for FY 2010, but worse than PSPIB's return of 21.5% for FY2010. The latter fund outperformed in fiscal year 2010 because of Private Equity and Infrastructure, but its FY 2009 results were much worse than CPPIB and bcIMC's results.

[Note: CPPIB's Policy Benchmark was 20.8% in FY 2010, PSPIB's was 19.8%, both of which were higher than bcIMC's 17.3% for its Policy Portfolio. Relative weightings in equities explain this difference.]

And as far as compensation, bcIMC's senior officers aren't compensated anywhere near the levels of their counterparts in Eastern Canada (click on image to enlarge):

I find it laughable that the media in Vancouver harps on the compensation of Doug Pearce, without comparing his total comp, or that of other senior officers, to their counterparts in Eastern Canada. And again, keep in mind this is one of the largest and best run public pension funds in Canada. Look at the total comp of their senior officers - nothing to scoff at, but nowhere near what they'd be making in Toronto (and Victoria, just south of Vancouver, is one of the most expensive cities in Canada in terms of housing).

Finally, if you take the time to carefully read bcIMC's 2009-2010 Annual Report, you'll see they are completely transparent, presenting all their benchmarks and objectives clearly, and the report is a pure pleasure to read. A layperson can read it and make sense of it. For me, bcIMC sets the bar in terms of reporting. And here's the kicker: they even ask their members and the general public to fill out a survey and provide feedback on their annual report. Kudos to them, they keep it simple as they deliver the long-term results their members are looking for.