British Columbia Investment Management Corporation (bcIMC) today announced that it recorded a one-year annual return of 5.9 per cent, net of fees, for combined pension plans for the year ending March 31, 2012.Invite my readers to carefully go over bcIMC's annual report by downloading it here. You can also download an interactive version of the annual report here. The interactive version provides navigation features, hyperlinks to pages of interest and the option of enlarging charts (not all features may be available on handheld devices or iPads).
By exceeding a combined market benchmark of 3.8 per cent, this result added $1.4 billion in value for bcIMC’s pension plan clients, net of investment management fees.
“Domestic real estate, private equity and infrastructure were the primary drivers of this value-added performance,” said Doug Pearce, Chief Executive Officer / Chief Investment Officer of bcIMC. “Strong performance in fixed income and the private market asset classes also offset the weaker returns within the global public equity markets.”
Among the specific highlights from the past year were:
“I am also pleased with the results we have provided for clients over the last five years, particularly given the global financial crisis and volatility within the capital markets,” added Pearce. “The five-year annualized return for our combined pension plans was 3.3 per cent net of investment management fees, which contributed over $262 million in added value. Our clients have fared very well compared to others and as a result, have been able to recover the declines in asset values experienced during the financial crisis.”
- committing over $1.1 billion to new mortgage loans and $850 million to private equity investments
- enhancing our clients’ strategic investment portfolio with the acquisition of TimberWest Forest Corp. (in partnership with the Public Sector Pension Investment Board)
- continuing progress with bcIMC’s 14 real estate development projects across Canada
- expanding our global equity platform with the funding of two new investment pooled funds - Indexed Global Equity Fund and Enhanced Indexed Global Equity Fund
- integrating the consideration of environmental, social and governance issues into the fundamental company analysis done by bcIMC’s Capital Markets Research Group
- receiving an overall satisfaction rating of 95 per cent from our clients in this year’s independent client survey, reaffirming our ongoing commitment to our clients
- receiving an unqualified audit opinion on our Service Organization Controls Report (Canadian Standard for Assurance Engagements – CSAE 3416)
- increasing our total assets under management to $92.1 billion, up by $5.2 billion from the previous year
bcIMC’s portfolio on behalf of clients encompasses six major asset classes: Fixed Income (26.8 per cent or $24.7 billion), Mortgages (4.1 per cent or $3.8 billion), Private Placements (4.4 per cent or $4.1 billion), Public Equities (45.0 per cent or $41.4 billion), Real Estate (14.4 per cent or $13.3 billion – net asset value; gross real estate value is $16.7 billion), and Strategic Investments and Infrastructure (5.3 per cent or $4.8 billion).
bcIMC also provides its business plan over the next three years, a document which outlines a longer-term vision that will enable bcIMC to enhance the investment management services they offer their clients.
I like reading bcIMC's annual report because like other annual reports, it is well written and provides a lot of useful information. Moreover, unlike others, I find bcIMC is more transparent and a hell of a lot clearer when it comes to benchmarking their investment portfolios. When I read their annual report, I know which portfolios are indexed or enhanced indexed and I know which activities are actively managed.
Importantly, their benchmarks for all investment activities aren't all perfect but they're clear and straightforward, not shrouded in secrecy or overly complicated. This is important and you will understand what I mean as I go over their results below.
In his message, bcIMC's CEO/ CIO, Doug Pearce, writes that the world is becoming more "complex and adaptive" as the pace of change is accelerating and the interconnection between capital and non-financial networks is intensifying. "Traditional economic, social, political and business environments are being redefined."
As a result, Mr. Pearce states the focus is on "returns, returns, returns." Like other large Canadian public pension funds, active management in privately-held assets has become more important and bcIMC is expanding their in-house real estate and infrastructure teams (Note to Doug Pearce: Have an exceptional candidate for you in Infrastructure and he happens to be living in Vancouver now. No Canadian pension fund has anyone in Infrastructure with his knowledge, contacts and experience.)
On to bcIMC's results. The pooled fund annualized returns are available here. As shown in the table below, the bulk of active management in 2011-2012 came from Real Estate and Private Equity (click on image to enlarge):
Private Equity returned 9.0%, outperforming its benchmark by 11.9% and domestic real estate returned 16.5%, outperforming its benchmark by 10.6%.
This is significant outperformance in private markets, on par or better than what other large Canadian pension funds delivered in these asset classes.
bcIMC's $4 billion private equity portfolio is primarily being managed by external managers but they are starting to be more active in directs and co-investments (this is why they're building up their teams). An inventory of bcIMC's public and private investments can be downloaded here.
Strategic investments and infrastructure also delivered stellar results, gaining 10%, 200 basis points above the nominal benchmark of 8%.
As far as public markets, the performance was mixed with some actively managed portfolios in public equities and fixed income outperforming their benchmarks while others lagged. I did note, however, strong outperformance in Canadian Bonds and Active Canadian Equity and Canadian Small Cap Funds.
Please note that unlike the Caisse, Teachers' or other large Canadian public funds, bcIMC does not invest in external hedge funds, only external PE managers. Most active management in public markets is done internally to cut costs and they have been delivering strong results.
In fact, the overall results for bcIMC over the last year, 5-years, 10-years and 20-years are very strong and this giant pension fund out in British Columbia doesn't get the recognition it deserves (press coverage is weak!!!).
Finally, a brief comment on compensation. Last week, the Vancouver Sun reported that B.C. will be placing restraints on Crown corporations executive compensation. There are some merits to this initiative but luckily bcIMC is exempt. They are definitely not overpaid.
In fact, a quick glance at the summary compensation table below tells me bcIMC's senior managers are well compensated but nowhere near as well paid as their peers at other large Canadian public pension funds (click on image to enlarge):
Public sector workers cannot understand compensation at public pension funds but pension fund managers are not civil servants, nor should they be paid like them. If you want solid long-term performance, you need to pay senior managers accordingly. Just make sure you're paying for real long-term performance!
Below, Kevin Falcon, B.C.'s Minister of Finance discusses why the government has released detailed information on total compensation for senior public sector executives in that province.