The British Columbia Investment Management Corporation (bcIMC) today released its combined pension plan returns for the year ending March 31, 2013 as part of its 2012–2013 Annual Report. With a one-year annual return of 9.5 per cent, net of fees, the results exceeded a combined benchmark of 7.8 per cent and added $1.5 billion in value to bcIMC's pension plan clients.bcIMC’s 2012– 2013 Annual Report is available here and the on-line version is available here. You can also read bcIMC's Business Plan 2012-2013 to 2014-2015 which is available here.
“Our domestic real estate and public equities portfolios were the primary drivers of our positive results last year,” said Doug Pearce, Chief Executive Officer/Chief Investment Officer of bcIMC. “On behalf of our clients, we began significantly increasing asset allocations towards real estate and infrastructure in 2011, and this heavier weighting to real assets is beginning to drive investment returns.”
There were a number of highlights from the past year, including:
"I am also pleased with the investment returns for the 10-year period. bcIMC delivered an annualized return of 8.2 per cent against a combined benchmark of 7.8 per cent. As a result, our investment activities contributed $3.2 billion in added value for our pension plan clients," added Pearce.
- Committing $3.4 billion to investments that span real estate, infrastructure and renewable resources, which included the purchase of the Canada Post site in downtown Vancouver and Open Grid Europe GmbH
- Creating a thematic investing strategy and adding four new funds to give exposure to themed assets, renewable resources, emerging markets and companies with high environmental, social and governance ratings
- Becoming a Qualified Foreign Institutional Investor in China , which allows bcIMC to invest in companies listed on Chinese stock exchanges
- Increasing internally-managed equity assets by over $1.5 billion and saving about $4.0 million in external manager fees
- Being ranked first in North America, and sixth globally, by the Asset Owners Disclosure Project in its global climate investment index that assessed asset management and climate risk disclosure
- Acquiring over 990 acres of developable land and completing six developments, adding over 876,400 square feet to our domestic real estate portfolio
- Receiving an unqualified audit opinion on our Service Organization Controls Report (Canadian Standard for Assurance Engagements–CSAE 3416)
- Increasing our global portfolio to $102.8 billion of gross managed assets, up by $7.3 billion from the previous year.
As of year-end, bcIMC had over $100 billion in gross assets under management. The portfolio includes six major asset classes: Fixed Income (22.9 per cent or $23.6 billion), Mortgages (3.4 per cent or $3.5 billion), Private Placements (4.5 per cent or $4.6 billion), Public Equities (46.6 per cent or $48.0 billion), Real Estate (17.3 per cent or $17.8 billion), and Renewable Resources and Infrastructure (5.3 per cent or $5.4 billion).
The results for 2012-2013 are very impressive. The 9.5% net return (net of expenses) represents $1.5 billion in value-added and exceeded the benchmark by 170 basis points (9.5% vs 7.8%).
As shown above (click on image), over a 10-year period, bcIMC has returned 8.2% net compared to 7.8% for its benchmark during that same period. And as shown below (click on image), the cumulative value added, net of fees, over a ten-year period is $3.2 billion.
As stated in the news release, domestic real estate and public equities portfolios were the primary drivers of their positive results last year. Doug Pearce, Chief Executive Officer/Chief Investment Officer of bcIMC, stated that they began significantly increasing asset allocations towards real estate and infrastructure in 2011, and this "heavier weighting to real assets is beginning to drive investment returns."
Indeed, as shown below (click on image), domestic real estate was one of the primary drivers of bcIMC's strong results, returning 11.8% in 2012-2013, or 6.8% above its benchmark of Canadian CPI + 4%:
Over a 20-year period, bcIMC's domestic real estate portfolio returned 10.1%, exceeding its benchmark by 4.2 percentage points. I have a couple of points to add on this. First, while the spread over inflation is one way to gauge the performance of real estate, as I stated in my comment on AIMCo's 2012 record results, the REALpac/IPD Canadian All Property Index – Large Institutional Subset is a benchmark which better reflects the performance of this asset class.
Second, Canadian pension funds have enjoyed a great run in domestic real estate but how long will it last? I don't know but with Toronto breaking new real estate records, and the media praising Canada's hot commercial real estate market, I'm getting nervous and understand why real estate keeps Leo de Bever awake at night.
Still, real estate is an important asset class, and since 1991, bcIMC has been building a domestic real estate portfolio that has a long-term, comprehensive focus and is capable of generating consistent returns through varying economic cycles.
Once again, I urge my readers to carefully go over bcIMC's Annual Report for 2012-2013. There is a lot of information I simply cannot cover here. I like their thematic approach to long-term investing and think many pension funds should adopt a similar approach for investing in public and private markets.
I congratulate Doug Pearce and all the employees at bcIMC for delivering strong and consistent long-term results. You don't hear a lot about bcIMC but they've been doing a great job managing pension assets for their clients and the organization deserves its place among Canada's top ten.
Below, Dennis Friedrich, chief executive officer of Brookfield Office Properties Corp., and Mark Dixon, chief executive officer of Regus LLC, talk about the commercial real estate market. They speak with Tom Keene and Sara Eisen on Bloomberg Television's "Surveillance." Robert Albertson, chief strategist at Sandler O’Neill & Partners LP, also speaks.