IMCO Gains 5.4% in 2020

The Investment Management Corporation of Ontario (IMCO) released its 2020 results today, posting a solid return and meeting its benchmark:

The Investment Management Corporation of Ontario (IMCO) today announced that the weighted average return of its clients’ funds was 5.4% (net of all fees) for the year ended December 31, 2020. Client returns ranged from 0.2% to 7.1%, reflecting broad differences in their respective asset mixes, risk tolerances, and investment objectives. IMCO also met its consolidated return benchmark index for the year, as assets under management rose to $73.3 billion.

“We delivered solid results and met our benchmark, even as we implemented new investment strategies and managed through the volatile investment environment created by COVID-19,” said Bert Clark, President and Chief Executive Officer.

“Our approach is disciplined. We focus on those things that generate better risk-adjusted returns for our clients over the long-term,” he continued. “That means avoiding large asset class over weights, ensuring adequate liquidity to navigate times of market stress, and managing costs effectively.”

Throughout 2020, IMCO introduced new strategies for each asset class, which led to a complete overhaul of certain categories, such as public equities and public market alternatives. Transforming other asset classes, including real estate, is underway.

“Our clients are already benefiting from these new strategies,” said Clark. “For example, private equity and global credit both delivered double digit returns and significantly outperformed their benchmarks. Transforming our real estate portfolio will take longer.”

IMCO also focused its investment activities in 2020 by reducing its external manager roster by approximately half, eliminating costly fund-of-funds structures, and establishing new strategic partnerships.

“There will always be external managers with unique investment capabilities, so we are actively building partnerships with those best-in-class investors,” said Clark. “We have also built internal capabilities that enable us to significantly reduce costs on behalf of our clients.”

Notwithstanding the continued growth in internal investment, risk management, and enriched client service capabilities, IMCO exceeded its cost savings’ target for the year by 25% as it continued to provide its clients with tailored investment solutions and access to asset management capabilities, which they could not replicate on their own at the same cost.

More details on IMCO’s 2020 performance can be found in the 2020 Annual Report. 


The Investment Management Corporation of Ontario (IMCO) manages $73.3 billion on behalf of its public sector clients. IMCO’s mandate is unique as it is the only purpose-built organization to deliver investment management services to broader public sector institutions in Ontario. In addition to creating better access to a diverse range of asset classes and investment opportunities, IMCO delivers portfolio construction advice and sophisticated risk management capabilities to its clients.

As a non-share capital corporation, IMCO delivers services on a cost recovery basis. It is an independent organization, operating at arm’s length from government and guided by a highly experienced and professional Board of Directors.

For more information, visit www.imcoinvest,com or follow IMCO on LinkedIn and Twitter @imcoinvest.

Earlier this afternoon, I had a conference call with Bert Clark, President & CEO, and Jean Michel, CIO, to go over IMCO's 2020 results.

Before I get to our discussion, I want to go over the 2020 Annual Report (feel free to scroll down to my discussion with Bert and Jean but I recommend you read the preliminaries).

I read it cover to cover this morning right when it appeared and loved it. 

And I'm not just saying this to flatter them, it was very well written, very transparent, informative and contained all the information I needed to go into my conference call with Bert and Jean very well prepared.

So, please take the time to read IMCO's 2020 Annual Report, it's well worth it.

Let me begin by going over 2020's highlights:

It's important to underscore that IMCO is a major Canadian pension fund that has just completed major shifts in strategies and is still in the process of diversifying its legacy portfolio.

Effectively, IMCO has undergone major transformations since its inception, especially over the last three years as Bert Clark and Jean Michel implemented their new strategies, hiring the right people and bolstering everything from risk management to front, middle and back office systems.

I would encourage my readers to read all the previous annual reports here to really understand the transformations that took place there since 2017.

Next, let me move on to Brian Gibson's (the Chair) report (pages 10-11):

I would like to acknowledge the entire IMCO team and my fellow board members for their dedicated response to a particularly challenging year. The events of 2020 will not fade from memory soon. The investment team ably steered our clients’ portfolios unharmed through the March market volatility and the rest of the year, and everyone at IMCO continued to focus on creating long-term value for our clients.

The Board worked with management in 2019 and early 2020 to ensure that strong liquidity and risk management practices were in place. These efforts were well timed. We were prepared to navigate the financial market difficulties in the spring, when COVID-19 panic roiled global markets. Equally important, IMCO continued its full operation after health protection measures cleared the office.I was impressed with how employees and management transitioned to the remote working environment and maintained a “can-do” attitude. IMCO’s business continuity program functioned exactly as it was designed to. We could not have predicted the nature or extent of the pandemic, yet we were well prepared for a crisis.

Board members were routinely briefed on liquidity and risk throughout the spring. We met more frequently than normal, by video, to assess ever-changing circumstances. During this time, the Board welcomed a new director, Eric Wetlaufer, who is a seasoned investment management executive. We also said farewell to Hugh Mackenzie, who had served on the IMCO Board since inception. I would like to thank Hugh for his valuable contributions and good advice.


The organization achieved several “firsts” in 2020. It was the first year that client assets were managed according to investment strategies developed by IMCO. So, for the first time, this annual report includes a consolidated one-year investment return and total portfolio benchmark. We firmly believe that long-term results matter more than short-term performance, and we have started to build our track record. The investment results were equal to our benchmark, a solid and satisfactory result given the extensive portfolio restructuring that occurred during the year. IMCO launched its first investment pool in 2020, the IMCO Canadian Public Equities Pool, with approximately $3.5 billion in assets. This was an important step in advancing our mandate to provide public sector institutions with world-class, cost-effective investment management services. Pools for other asset classes will follow in 2021. (At time of writing this annual report, IMCO had launched the IMCO Global Public Equities Pool and the IMCO Emerging Markets Public Equities Pool. This means IMCO has pooled approximately $26.8 billion of the aggregate AUM in its public market pools.)

The pandemic, along with widespread demands for equality and social justice, highlighted the growing need for investors to focus on environmental, social and governance (ESG) matters. IMCO’s staff did important foundational work on ESG and sustainability in 2020. This included consulting with the Board and other stakeholders about priority areas, establishing a clear governance structure and developing an ESG strategy. The Board approved this strategy as part of IMCO’s updated Responsible Investing policy.

I would like to thank IMCO’s management and employees for their dedication and skill in steering investments and managing risks for clients, despite the daily distractions of a global pandemic. This was truly a job well done in difficult circumstances. It is to your credit that IMCO achieved its goals for the year and is positioned to create value for our clients in 2021.

Let me just pause here to remind my readers that like other large Canadian pensions, IMCO is an independent, investment management organization that operates at arm’s length from government and its members. 

It is guided by a highly experienced, professional board of directors, one of the best board of directors in the world with tons of experience working at large pensions and other great organizations:

I can tell you, just Brian Gibson, Bob Bertram and Eric Wetlaufer's experience at OTPP and CPP Investments alone is worth its weight in gold, but if you read the bios of all the board of directors, these are extremely qualified and experienced individuals guiding this organization through an important growth phase during these uncertain times.

By the way, did I ever tell you my favorite Bob Bertram story? He was CIO at OTPP in 2008 (before he retired) and I put in a call to him to get his views on the meltdown. This was in the thick of the financial crisis when asset prices were collapsing and I remember asking him if they're buying the dips.

I'll never forget what he told me and the concern in his voice: "Oh, we bought the dips and the market keeps going lower, we are done buying the dips here."

For all you youngsters who never lived through the 2008 GFC, the 1999-2000 tech meltdown, the 1987 crash or the 1973-74 bear market, you might not understand the value of having people like Bob Bertram, Eric Tripp, Brian Gibson and Eric Wetlaufer on your board, but let me tell you, IMCO's members and management are very lucky to have such immense experience on this board (a bit intimidating but mostly reassuring to lean on their collective experience when the going gets tough).

Alright, let me move on to Bert Clark's CEO report to members (pages 12-13):

I am very pleased with the progress we made and the resilience of the IMCO team in 2020. Our investment results, which we are reporting for the first time, were strong in most areas, and the total fund return was in line with our benchmark. We delivered the services our clients need most: portfolio construction advice, opportunities to invest in diverse assets, and strong liquidity and risk management. We also exceeded our cost-savings target and advanced multi-year programs that will improve client service.


IMCO’s consolidated net investment return was 5.4 per cent in 2020 and assets under management stood at $73.3 billion. Assets were augmented with the addition of $420 million in assets from the Provincial Judges’ Pension Plan, which became a new client in the spring.

Our portfolio performance was equal to our benchmark return of 5.4 per cent, and we are proud of this result in a volatile and unpredictable year. We achieved double-digit returns in public equities, global credit and private equity. At the other end of the spectrum, our retail real estate assets were heavily affected by lockdowns and the abrupt shift to shopping from home.

We were able to navigate the COVID-19 pandemic because we had previously put in place robust measures to manage liquidity. Managing total portfolio liquidity to avoid being a “forced seller” and to be able to take advantage of buying opportunities is one of the keys to long-term investment success. Our clients had sufficient liquidity throughout 2020 to meet their needs, and our investment leaders were able to put money to work during the market disruptions. We expect those new allocations will deliver positive results over the long run. It is sustainable performance that matters to our clients, and our investment teams take a long-term view.

We monitor key trends that will influence markets over time. One is the rise in importance of environmental, social and governance (ESG) considerations in investment decisions. ESG issues such as climate change and diversity are important to IMCO, our clients and other stakeholders. Our teams integrate ESG considerations in our due diligence process to manage risk, and in the ongoing search for investments.


In the face of a global pandemic, IMCO did not waver or alter course. We made significant progress on all our multi-year programs, which are designed to elevate our processes, systems and teams in order to better serve our clients.

For example, several years of work culminated in the milestone launch of IMCO’s first structured pool of assets, the IMCO Canadian Public Equities Pool, in November, with assets of $3.5 billion. Before being able to launch, we had to build out our investment and risk management teams, develop new investment strategies which launched on Jan. 1, 2020, and do detailed operational work on the architecture, governance and legal frameworks needed to pool assets.

We updated clients throughout the year on market developments, advised them on asset mix and emphasized the importance of well-diversified portfolios. We also enhanced our interactions with clients’ management teams and their board investment committees.


Employee wellbeing is an ongoing focus for us. We took steps to support our employees in trying times. We offered a virtual care package, webinars on navigating stress and change, COVID-19 information sessions and wellness sessions.

We take pride in offering an inclusive work environment. We updated our Inclusion and Diversity Statement in 2020, reviewed human resource policies and program guides with a lens on inclusion and diversity, and conducted unconscious bias training for senior executives and other staff.


IMCO’s scale means we offer clients access to a comprehensive suite of investments at an efficient cost. We leverage our scale in negotiations with external managers, when co-investing alongside partners, and by internalizing some strategies and using lower-cost passive or factor-based approaches in certain market segments. Our investment teams developed important new relationships with high-performing managers in 2020.

Our private market strategies, such as infrastructure and private equity, offer IMCO clients the ability to invest in private assets and debt, managed by leading global fund managers, at discounts to the rates these managers would charge smaller institutions.

We did well in managing our costs in 2020, exceeding by 25 per cent our target to achieve $10 million in cost savings.

When IMCO started out, our portfolio was heavily dominated by fund-of-funds and numerous externally managed funds. We refocused our roster of external managers, trimming the roster from 200 to 124.

By focusing on the critical aspects of investing – ensuring appropriate diversification, providing consistent access to liquidity, creating strong partnerships, and integrating ESG considerations (all at reasonable cost) – we continued to deliver value to our clients throughout 2020.

As I stated before, IMCO has refocused its portfolio to cut costs, manage liquidity and risks a lot tighter and add value by diversifying across public and private markets through key strategic partnerships, effectively delivering value to their clients.

Who are their clients? The image below provides those details:

As you can read, IMCO has room to grow and attract new clients, and I highly encourage prospective new prospective clients to join this organization and have their pension managed by professional pension fund managers looking after their long-term interests.

Now, in terms of investments, there's an excellent discussion in the annual report which begins on page 26.

First, some context to keep in mind:

So, this annual report marks the first time IMCO has disclosed investment results across all strategies which explains why it's the first time I am covering their results on this blog.

And here are IMCO's 2020 net investment results by asset class:

A detailed discussion of each asset class is available starting on page 32 of the annual report.

A few key points:

  • Public Equities underperformed their benchmark by 150 basis points (10.7% vs 12.2%). A historic overweight to value stocks explains the underperformance but emerging markets did come through nicely. Also, the one-time transition cost of exiting managers in Public Equities to cut costs over long run also impacted performance.
  • The Fixed Income portfolio returned 20 basis points above benchmark (8.7% vs 8.5%) as government bonds rallied last March in a risk-off environment and the portfolio added much needed liquidity to IMCo's clients to capitalize on opportunities as they arise.
  • Real Estate suffered the biggest losses last year, down 12.1% while its benchmark was down 7.4%. I spoke to Bert and Jean about this portfolio (see below) and basically they have a high exposure to Canadian Retail and Office (legacy portfolio) which got slammed last year as shutdowns took effect. The portfolio is being diversified away from Canada and into more multi-family and logistics but it's still a work in progress.
  • Global Infrastructure gained 1.6% vs a -10.1% for its benchmark. "The portfolio’s heavy investments in energy and transport infrastructure led to low portfolio returns on an absolute basis. However, a combination of strong performance from telecommunications, utilities and clean energy investments, well-timed exits and structural protections in energy exposures resulted in strong performance relative to the benchmark."
  • Public Market Alternatives (global hedge funds) gained 2.2% last year vs a benchmark return of 1.8%. Bert explained to me they exited costly fund-of-funds last year and the transition cost them but also implemented new strategies through a managed account platform that are doing well.
  • Global Credit outperformed its benchmark last year by 500 basis points (11.1% vs 6.1%). The primary driver of this outperformance in 2020 was risk positioning. The year started out with credit being fully valued based on historical levels. IMCO’s portfolio was underweight credit risk and long duration, which benefited performance as risk sold off and interest rates declined. As credit markets began to recover, the team reduced portfolio duration to benchmark levels and added credit risk through new investments. 
  • Lastly, Private Equity significantly outperformed its benchmark last year, 34.2% vs 9.3%, adding 25% of net value add. IMCO invests and co-invests with top funds in private equity funds and Bert explained to me they made great returns in their investment in Corsair Gaming which they invested in alongside EagleTree Capital. Corsair Gaming IPOed in September 2020 and the stock has since done very well (CRSR is symbol but IMCO's money was made at exit).

Discussion With Bert Clark and Jean Michel

Alright, it's time to end things off with my discussion with Bert and Jean.

I want to thank them for taking the time to talk to me earlier today and thank Neil Murphy for setting up this conference call. 

By the way, Neil Murphy, their VP Corporate Communications, and his team worked hard on the annual report and I have to give them full credit just like I have to give Dan Madge (his counterpart at OTTP) and his team full credit for writing a great annual report there (it's not easy writing these reports).

Anyway, Bert started off by stating "he's very proud of his team" as they "didn't miss a beat" throughout this pandemic, ensuring "operational continuity" and "delivering above and beyond on their corporate objectives."

"This allowed us to get done what we needed to do and meet our clients' needs."

In our discussion, he highlighted several key drivers of long-term success:

  • Ensure appropriate diversification across and within asset classes
  • Managing all risks including liquidity risk very carefully
  • Leverage IMCO's scale to keep costs as low as possible (internalize activities and partner with funds to add value but reduce costs through co-investments), ensuring higher net returns over long run
  • Maintain focus on value add using all available tools including rebalancing
  • Integrate ESG in all their investments to ensure they are practicing good stewardship and screening all their investments for ESG risks.

Bert told me he's "very proud of Jean and is team" as they "overhauled all asset classes" last year, cut costs, internalized activities, developed strong partnerships, launched new strategies, etc.

We did speak about Real Estate which he noted was "challenged" but he also noted a lot of work was initiated before the pandemic hit to reposition that portfolio:

  • Strategic partnerships remains their focus. He noted they entered into strong partnerships with Breakthrough, Kingsett, Tishman Speyer, WPT Industrial Real Estate and Dermody Properties to invest alongside them into life sciences, multi-family and logistics properties.
  • He said they are looking at all underperforming real estate assets "systematically, asset by asset" to see where they can add value by redeveloping them. 
  • He noted, however, they're not in a rush and will do what is in the best interest of their clients over the long run.

I think that is wise. I told Bert BCI's QuadReal did a huge deal a couple of years ago with RBC Global Asset Management to diversify away from (a portion of) its Canadian real estate holdings but there are other options, including working with developers to redevelop properties in Canada to add significant value to them.

I'm looking forward to talking more about real estate with Andrew Garrett, Senior Principal, Real Estate at IMCO, on Thursday afternoon when I moderate a panel discussion on COVID impacted private markets at the Toronto CFA Society 2021 Pension Conference. 

What is clear to me is like others (CDPQ, OTPP, OMERS), IMCO had a challenging year in Real Estate as some assets got hit hard and this was to be expected but the pandemic also gives them an opportunity to reposition and diversify these portfolios so they are more solid over the long run.

As Bert noted, the pandemic accelerated trends that were already going on before, like the fall of brick and mortar and the rise of e-commerce, but it also added uncertainty in office space as companies moved their employees to working from home.

In Private Equity, as mentioned above, Bert told me they made great returns in their investment in Corsair Gaming through their partnership with EagleTree Capital (they co-invested with them in this company which subsequently IPOed, allowing them to realize great returns).

Jean Michel told me they favor strong strategic partnerships in public and private markets, calling it the "hybrid model" where you internalize whatever you can but work with partners to co-invest alongside them on bigger deals.

This is especially important in private markets as IMCO scales its activities all over the world:

Jean spoke to me about how they reacted last year when markets sold off hard in March and then snapped back:

  • He said going into 2020, they were positioned defensively, focused on liquidity (added more bonds in 2019) and told their Board they need to be ready to seize on opportunities as they arise. This was before the pandemic hit.
  • So when March rolled around, they rebalanced their portfolio away from government and investment grade bonds into stocks and high yield bonds. "We were prepared before everything went south but obviously couldn't predict the pandemic and the intensity of the snapback rally."

Bert also mentioned the importance of rebalancing and stated they had an "all-start team" on their board of directors they can lean on for advice.

He stated: "They're a tremendous asset and have low egos, they literally told us things like 'we tried that and it didn't work' and were very  helpful during this tumultuous time."

As I stated above, IMCO's board of directors (both men and women) is an incredible asset in every respect, the senior managers and employees are lucky to have them there to lean on for advice when needed.

What else? I asked Bert and Jean whether leverage is an element of their liquidity risk management and they told me "not yet but we are looking into it and in discussions with clients and our board."

I believe it should be and Jean Michel has a lot of experience using leverage in an intelligent way (he brought back Air Canada's pension from the brink of insolvency and laid the foundations for Vincent Morin and his team at Trans-Canada Capital).

Jean Michel also has a solid  investment team at IMCO which has great experience and I'm looking forward to covering more of their activities going forward.

Lastly, I couldn't resist to ask both Jean and Bert their thoughts on markets right now.

We entered into a fascinating discussion on deflation-inflation (I can't help it, I love that topic) and the insane amount of central bank intervention into the global economy and financial markets.

Jean told me he sees reflation continuing over the next 12 months but longer term, he agrees with me that there are structural factors which are deflationary (demographics, high debt, inequality, technological advances, globalization, etc.).

He said this: "The big question is whether the economy can start spinning its wheels without central bank intervention and deflation remains their biggest concern going forward. Self-sustaining inflation is hard to see here."

Bert noted that "20 years ago, the Fed put out a statement and analysts would spend three days going over it word by word. Nowadays, the Fed's balance sheet is close to the size of BlackRock's assets under management."

Like me, Bert is concerned about all this intervention stating: "We are relying on them (central banks) to get it right but they're not all knowing and infallible, if an externality hits, it can hit markets hard."

And he also mentioned that in human history, there's no example where this amount of government intervention can sustain markets indefinitely: "It creates a misallocation of capital, asset and housing inflation and exacerbates inequality."

I couldn't agree more and we ended it on this fascinating discussion.

I really enjoyed talking with Bert and Jean, they're a pleasure to talk to and they have done a great job bringing IMCO to where it is now. I thank both of them for taking the time to talk to me.

Going forward, I look forward to covering IMCO in detail and once again, please take the time to read IMCO's 2020 Annual Report for more details.

As is customary, I end with a table of executive compensation:

I urge my readers to read the full discussion on compensation starting on page 67 and keep in mind, this is their first year where they report results.

More importantly, IMCO is very transparent in terms of its costs and posts this detailed table in its annual report:

They keep things simple, focus on asset mix, rebalancing, diversification, control costs and enter into long-term strategic partnerships where they can add value for their clients over the long run.

It's a great shop, one I highly recommend to prospective clients looking for a pension manager to manage their employees' pensions.

 Below, some highlights from IMCO's 2020 Annual Report:

Also, take the time to read this Bloomberg BNN article on IMCO's 2020 results:

Ontario’s new public fund manager is revamping its real estate portfolio, cutting its exposure to retail property, after suffering a 12.1 per cent loss on those holdings last year.

Investment Management Corp. of Ontario, the pension manager for government workers in the Canadian province, posted an overall gain of 5.4 per cent for 2020. Real estate losses were offset by strong returns from credit and stocks.

IMCO, which manages $73.3 billion, was created less than five years ago to consolidate several public sector funds under one manager. It’s still in the process of building its investment team and diversifying the assets it inherited.

The $10.2 billion real estate group is one example: It’s 79 per cent office and retail space, which performed poorly because of the pandemic. “We have a portfolio that’s, unfortunately, underweight logistics and multi-residential,” IMCO Chief Executive Officer Bert Clark said in an interview.

Rebalancing those holdings “is going to take time and a lot of hard work,” Clark said. “There are assets that we’re going to have to sweat.” IMCO has struck deals with firms including KingSett Capital Inc. and Dermody Properties LLC to invest in apartments and industrial properties.

IMCO is also planning to increase its exposure to global credit, which represents just 6 per cent of assets as of Dec. 31. That won’t necessarily come at the expense of government bond holdings, Clark said.

IMCO’s small private equity portfolio earned 34.2 per cent after the successful initial public offering of Corsair Gaming Inc.

Another bright spot for the fund was its ability to push cash into stocks after markets plunged in February and March last year, he said. The fund earned 10.7 per cent on public equities, more than double the total return of the S&P/TSX Composite Index.

“You can’t be a long-term investor if you don’t have your eye on liquidity,” Clark said. “In those dips you won’t be forced to sell, and in an ideal world you can actually be a buyer.”

I thought Bert gave a television interview today but it wasn't the case so I embedded an older Canadian Club interview with him from last year which is excellent and well worth watching.