Wednesday, September 4, 2013

Doug Pearce to Retire from bcIMC

Last week, the Globe and Mail reported, B.C.’s asset manager for public pensions, trusts to retire:
Doug Pearce, long-time chief executive officer of British Columbia Investment Management Corp., will retire next year.

In an announcement Tuesday, BCIMC said it anticipates it will have a successor selected to replace Mr. Pearce by next March, but said he is willing to stay on past March 31 if necessary to complete a transition to a new leader.

Mr. Pearce has spent the past 25 years overseeing the assets of British Columbia’s public sector pension plans, and has served as both CEO and chief investment officer of the fund. BCIMC is an independent agency that manages more than $100-billion for the province’s pension plans, public trusts and insurance funds.

“After 25 years, it is time to move on and allow BCIMC to transition to a new generation of leadership that will continue to provide the best long-term view that is the foundation of our business,” Mr. Pearce said in a statement.

BCIMC chairman Rick Mahler said Mr. Pearce has led the fund through “many challenging times and events” in the markets.

“Doug’s vision led to the establishment of BCIMC and he went on to create a company with an international reputation of being a prudent, ethical and responsible investor that is held in high regard by our peers and partners,” Mr. Mahler said in the statement.

Since 1988, Mr. Pearce has seen BCIMC’s assets grow from $15.9-billion to over $100-billion while increasingly diversifying its holdings from passive bond and stock investments to a portfolio of infrastructure, real estate, renewable resources and mortgages. The fund’s 20-year annualized return for combined pensions is 7.9 per cent.

Mr. Pearce has also taken an active role in promoting corporate governance reforms for publicly listed companies in Canada and served as the chair of the Canadian Coalition for Good Governance, a powerful association of large institutional investors, from 2006 to 2009.
You can read bcIMC's press release here. Doug Pearce was kind enough to call me yesterday and we chatted about his career, reflecting on key milestones and bcIMC's approach to investing.

This was the first time I spoke to Mr. Pearce and he came off exactly like I envisioned, a nice, smart, humble gentleman who knows his stuff and loves his job. "It was a wonderful career. I never had a day where I felt I had to go to work. I enjoyed making our clients happy."

Mr. Pearce told me that looking back his proudest achievement was "building an organization." Some of the most important milestones happened in the late eighties and early nineties when legislation was passed allowing bcIMC to operate independently from the government. "It took a while to change legislation and spin out as an independent corporation in 1999."

Another key milestone was diversifying the portfolio away from stocks and bonds into real estate, private equity, infrastructure, renewable resources and mortgages. bcIMC got into real estate in 1991 and now has over $16 billion in this asset class, primarily in Canada. "It's been a great asset class, providing us a net income of 6% over the long run. We have some very nice properties, including Marché Central in Montreal, which we want to develop."

bcIMC got into private equity in the mid 90s, first through funds and then started co-investments and direct investing. They also invest in infrastructure through this portfolio. On private equity, I mentioned that funds have benefited from soaring stock markets but challenges lie ahead as the pressure is on to find deals. Investors have been lukewarm on this asset class and some of the biggest investors, including CPPIB, have raised concerns over the pricing of deals. Mark Wiseman, President and CEO of CPPIB, stated the CPP fund will make fewer deals if rising investor confidence drives prices too high.

Mr. Pearce told me that their "distributions are larger than deployments but that's fine." He added that in this environment, he is neutral on all asset classes. "There is tremendous competition everywhere. Even in commercial real estate mortgages, which have been great, we are competing with the big banks."

I asked him what explains bcIMC's  success over the long-term (see my comment on their latest results). He told me they always took a "conservative approach to asset allocation and maintained a long-only, long-term view," which explains why they never invested in hedge funds. "Hedge funds never fit into our philosophy. We never believed in short-term trading and we don't take on a lot of leverage."

Mr. Pearce admitted their conservative approach cost them some upside gains in good years but it protected them well during down years. He told me that over the last 25 years, they benefited from the "great tail-wind of declining interest rates" but admitted that the 2007-2008 episode was "extremely stressful."

On risk management, he shared this beautiful insight: "One thing markets taught me is humility.  The riskiest time in the market is when everyone thinks there is no risk at all."

I couldn't agree more and think bcIMC was extremely lucky to have Doug Pearce at the helm for the last 25 years. The media out West loves to scrutinize his compensation but I can tell you he and the rest of the employees at bcIMC are underpaid relative to their eastern peers. Still, he managed to assemble a great team, telling me "we offer other advantages like a nice work-life balance and a great place to live."

I thank Doug Pearce for taking the time to speak to me. I wish him a happy retirement and told him he would make a great board member at a pension fund or corporation if he decides to do so.

Below, Francesco Garzarelli, co-head of macro and markets research at Goldman Sachs Group Inc., discusses the outlook for bond markets ahead of the Federal Reserve's two-day meeting Sept. 17-18 and Italian bonds. He spoke yesterday with Manus Cranny on Bloomberg Television's "The Pulse."