BCI's CEO/CIO Discusses Fiscal Year 2022 Results and More

BCI released its results last week, announcing a 7.4 per cent annual return for Fiscal 2022:

Generated an additional $4.4 billion in added value and increased assets under management to $211.1 billion.

Highlights for fiscal year ending March 31, 2022:

  • One-year annual return of 7.4%, representing $4.4 billion in added value
  • Five-year annualized return of 8.3%, representing $7.7 billion in added value
  • 10-year annualized return of 9.1%, representing $13.2 billion in added value
  • 20-year annualized return of 7.7%, representing $15.3 billion in added value
  • Net assets under management increased by $11.5 billion to $211.1 billion in fiscal year 2022

VICTORIA, BC (July 21, 2022): British Columbia Investment Management Corporation (BCI) announced today an annual combined pension plan return of 7.4 per cent, net of all fees, for the fiscal year ended March 31, 2022, against a combined market benchmark of 4.6 percent. The returns generated $4.4 billion in added value for BCI’s pension plan clients. BCI increased the managed net assets by $11.5 billion to $211.1 billion, and reflects investment gains of $13.8 billion and client net withdrawals of $2.2 billion.

“Our strong performance reflects many years of preparation for market volatility,” said Gordon J. Fyfe, BCI’s chief executive officer and chief investment officer. “Our evolution into a world-class investment manager with active, in-house capabilities is yielding real results for our clients.”

BCI’s well-diversified portfolios and sophisticated investment strategies have safeguarded our clients’ capital through the market turbulence resulting from the COVID-19 pandemic as well as the Russian government’s invasion of Ukraine and is well positioned to continue to do so in this environment of tightening monetary policy as central banks work to address inflation. Private equity, infrastructure & renewable resources, and real estate contributed significant gains, demonstrating the effectiveness of BCI’s transition to a greater emphasis on the private markets and inflation sensitive assets.

Our multi-year performance is the best measure for our success; pension plan clients have return expectations that range between 5.65 per cent and 6.75 per cent to support their financial obligations in future years. BCI’s 10-year annualized return for combined pension plans is 9.1 per cent against a benchmark of 8.0 per cent, representing $13.2 billion of value-add. Over the five-year period, BCI delivered an annualized return of 8.3 per cent, outperforming a benchmark of 7.3 per cent and generating $7.7 billion in added value. Our pension plan clients remain fully funded, with funding ratios ranging from 105 per cent to 128 per cent. Returns are important – for every $100 a pension plan member receives in retirement benefits, on average $75 is provided by BCI’s investment activity.

“As we emerge from this unprecedented time, we continue to face increasingly complex global markets,” said Gordon J. Fyfe. “Having completed our transformation, and having put our approach to the test, we are ready to engage our strategies, talent, and tools in new ways to continue delivering the returns our clients rely on.”

Work done this year has positioned BCI to expand our global footprint and grow our influence on the investment landscape. To further power our ability to capture investment opportunities for our clients, we have opened an office in New York City for BCI’s private equity program, and will be opening a London, U.K. office to support infrastructure and renewable resource investments. Physical presence in these financial centres will bring BCI’s investment teams closer to deal flow, build brand awareness, and support the recruitment of diverse, world-class talent. Greater proximity to assets already within our portfolios also supports our approach for active oversight and engagement.

“Establishing global offices and creating our own internal emerging markets group are important next steps for creating value in the globally interconnected investment market,” said Fyfe.

We have also launched an internal active Global Emerging Markets Equity fund, bringing the cost-efficiencies and alignment benefits of in-house investing to this expanding segment of our clients’ portfolios. Investing in the emerging markets of economies that are becoming more mature, stable, and engaged globally — such as India and Brazil — offers an important opportunity for growth, particularly in periods of rising inflation and diversifies the sources of returns.

Further information on our current initiatives and activities can be found in our updated Business Plan, also released today. Guided by our Long-Term Vision, BCI evolved our corporate strategies starting in F2022. These strategies are grouped under four strategic ambitions that form the basis of our business plan: Strengthening the Client Value Proposition, Optimizing Risk-Adjusted Returns, Leveraging Digital Technology and Focusing on Our Talent— including progress around equity, diversity, and inclusion.

“Our people and the culture we have built together are what make things happen at BCI,” said Fyfe. “I am proud of the strong results for our clients that we are announcing today, and I am honoured to lead our team of dedicated professionals.” 


Public markets, composed of fixed income and public equity investments, represents $124.7 billion and accounts for 59.1 per cent of net assets under management.

BCI’s $78.0-billion fixed income program, up from $71.2 billion at the end of the previous fiscal year, accounts for 37.0 per cent of net assets under management. The program invests in public and private market debt and oversees our exposure to foreign currency. In the year’s highly dynamic market environment, our well-diversified program continued to outperform, led by our team’s strong credit selection skills and BCI’s ability to take on larger loan allocations. We continued to expand access to fixed income credit products and capabilities, notably through the Corporate Bond Fund and the Principal Credit Fund. We also surpassed more than $3 billion in total historical sustainable bonds involvement, compared to $1.4 billion in fiscal 2021. BCI’s strategies in fixed income will lead to an estimated cumulative participation of $5 billion in sustainable bonds by 2025.

Our $64.3-billion public equities program, a decrease from $66.6 billion in fiscal 2021, represents 30.5 per cent of net assets under management. The program delivered positive returns as markets continued to rally from 2020 lows. Despite exceptional gains, equity market volatility persisted, influenced by the COVID-19 pandemic and the Russian government’s invasion of Ukraine. In response to rapidly evolving market conditions, we remained focused on our investment process and long-term perspective. During the fiscal year, the program passed a key milestone, as equities actively managed internally surpassed active external equities.

In addition to fixed income and public equities, our public markets team manages a funding program representing $17.6 billion, or (8.4) per cent of total liabilities under management.


Private equity represents $24.8 billion and 11.8 per cent of net assets under management, compared with $20.7 billion at the end of the previous year.

The program invests directly in private companies on our own and with strategic partners, and indirectly through our fund investments. It focuses on the business services, consumer, financial services, healthcare, industrials, and technology, media, and communications sectors.

In year ended December 31, 2021, record levels of deal activity and demand for private equity assets provided opportunities to lock in attractive returns in both our direct and fund portfolios. Well-timed partial and full exits from direct investments supported the year’s strong performance.

Through strategic secondary sales, we sold approximately 70 funds during the year, thus freeing up approximately $2 billion in capital to redeploy into our key, high performing strategic managers who support sourcing of our direct opportunities. The investment team committed $6.8 billion in total client capital, the most of any year for the program, including $2.2 billion in direct investments, and $4.6 billion in funds.

Total distributions for the year amounted to $8.5 billion — over $6 billion more than the previous year.


Our infrastructure & renewable resources program represents $20.2 billion and 9.5 per cent of net assets under management, compared with $20.0 billion at the end of the previous year. Through the year ending December 31, 2021, the investment team committed $2.0 billion in new opportunities for our clients.

The program makes material equity investments that allow BCI to pursue an active governance approach with our portfolio companies. The program is diversified by geographic region and sector and consists of a global portfolio of regulated utilities in the water, electricity, and gas sectors, as well as holdings in the digital infrastructure, power, and transportation sectors. The program also holds select investments in timberlands, farmlands, and agri-businesses.

The program saw strong capital appreciation of some of the largest assets in the portfolio, generated through both favourable market conditions and solid business operations. Outperformance in our timber portfolio was driven by robust demand for wood products, particularly within local markets. Increased consumer activity also bolstered our shipping and transportation portfolio which experienced elevated volumes and strong revenue growth throughout the year.


QuadReal Property Group (QuadReal), a company owned by BCI and created in 2016, actively manages our clients’ real estate equity and real estate debt (previously called mortgages) portfolios, representing $41.4 billion or 19.6 per cent of net assets under management.

The $33.6-billion real estate equity program accounts for 15.9 per cent of BCI’s assets under management, compared to $28.5 billion at the end of fiscal 2021. Performance was buoyed by strong returns and capital value growth in the second half of 2021, specifically led by momentum in the industrial and residential sectors. Outperformance in the industrial sector was driven by the expansion in e-commerce, with retailers, third-party logistics companies, and other operators competing for coveted warehouse space. Strong valuations in the global real estate equity portfolio also contributed to the returns.

The health and safety of tenants, residents, and front line QuadReal staff continued to be of paramount importance through each wave of the pandemic. As a positive sign of how organizations are adapting, occupancy is at encouraging levels across nearly the entire portfolio, with the industrial portfolio currently sitting at full occupancy.

The $7.8-billion real estate debt program accounts for 3.7 per cent of BCI’s net assets under management, compared to $7.0 billion at the end of fiscal 2021. The program underwent a name change this year to reflect the broader scope of QuadReal’s real estate debt expertise beyond only mortgages. QuadReal deployed a record amount of client capital this year; however, as was witnessed across the private credit industry, the program also experienced significantly higher-than-expected early repayments. This was driven by a combination of low market interest rates and substantial lender appetite, which enabled borrowers to refinance their loans at lower cost. A prudent and disciplined approach led to outperformance for the year, despite a competitive and crowded marketplace.


BCI is committed to maintaining fiscal discipline as we continue to expand our global footprint. Our active, in-house asset management model requires robust systems and processes, and a growing complement of specialized expertise. Cost advantages arise from the economies of scale of managing $211.1 billion, pooling assets, and managing 80.6 per cent of assets in-house. Continuing to invest in our internal capabilities is the most significant lever BCI has for reducing the total cost to our clients of value-added active management.

BCI’s total costs, consisting of internal, external direct, and external indirect costs, were $2.2 billion or 1 dollar and 8.1 cents per $100 of assets under management for fiscal 2022, all of which are netted against investment returns. This compares to total costs of $1.6 billion or 88.5 cents per $100 in fiscal 2021. The increase in costs was driven primarily by strong performance and value-add in private equity and real estate, which resulted in higher external costs on the proportion of assets managed externally. While strong performance results in higher fees paid to external managers through profit-sharing agreements, our clients retain most of the value added by these managers.


  • Disbursed $9.2 billion in distributions to our clients compared to $8.6 billion in F2021. Increased distributions were primary generated by record level activity in our private equity portfolio.
  • Welcomed two new clients: Municipal Retiree Benefit Trust (MRBT) and Innovate BC; adding $117 million to assets under management.
  • Obtained an “excellent” rating in our most recent biennial client satisfaction survey, for integrity and professionalism with overall high client satisfaction rating.
  • Reached $3.1 billion in cumulative historical participation in sustainable bonds, compared to $1.4 billion in fiscal 2021.
  • As part of a consortium, announced the upcoming acquisition of two investments, Reden Solar and National Grid PLC gas transmission business, that will play a critical role in helping Europe achieve its energy transition aspirations.
  • Committed $6.8 billion in total client capital for private equity investments, the most of any year for the program, including $2.2 billion in direct investments, and $4.6 billion in funds.
  • Joined more than 100 private equity investors in committing to the ESG Data Convergence Project, which aims to advance a standardized set of ESG metrics in private markets.
  • Received the Canadian Investment Review 2021 Pension Leadership Award for Sustainable Investing, the 2021 Responsible Investment Association Leadership Award for Integration, and achieved a top spot in the Responsible Asset Allocator Initiative’s 2021 Leaders List of the 30 Most Responsible Asset Allocators.
  • Ranked 10th in Infrastructure Investor’s 2021 Global Investor 50 – a list of the largest institutional investors in global infrastructure. This is the third consecutive year we are in the top 10, and we have been included in the list each year since its inception in 2018.
  • QuadReal committed $8.7 billion to new real estate commitments, the highest level ever
  • QuadReal has 26 ENERGY STAR-certified buildings across Canada, reflecting an ongoing commitment to excellence in sustainability and received the inaugural ENERGY STAR® Canada Award for Commercial Building of the Year.
  • QuadReal developed new lending relationships, while aligning resources within, to benefit from broader market participation in more investment opportunities alongside the real estate teams in the United States and Canada
  • Made significant strides in implementing our Equity, Diversity, and Inclusion (EDI) Strategy.
  • Recognized for a third straight year as one of Canada’s Top 100 Employers, Top Family-Friendly Employers, and B.C.’s Top Employers.
  • Expanded mental and physical health and wellness offerings, providing employees with virtual medical and counselling services, and a physical activity reimbursement program for sporting activities and equipment.


British Columbia Investment Management Corporation (BCI) is amongst the largest institutional investors in Canada with C$211.1 billion under management, as of March 31, 2022. Based in Victoria, British Columbia, with offices in Vancouver and New York City, BCI is invested in: fixed income and private debt; public and private equity; infrastructure and renewable resources; as well as real estate equity and real estate debt through our independently operated platform company QuadReal Property Group. With our global outlook, we seek investment opportunities that convert savings into productive capital that will meet our clients’ risk and return requirements over time. This compels us to integrate long-term ESG matters into all investment decisions and activities. BCI’s clients include pension plans representing over 715,000 plan members, insurance funds providing more than three million Autoplan insurance policies annually, benefits coverage to more than two million workers and 225,000 companies, and special purpose funds within BC’s public sector. Founded in 1999, BCI is a statutory corporation created by the Public Sector Pension Plans Act.

This afternoon, I had a chance to discuss BCI's fiscal 2022 results with Gordon Fyfe, its CEO/ CIO. 

I want to thank Gordon for taking the time to talk with me as well as thank Gwen-Ann Chittenden, Vice President, Corporate Stakeholder Engagement, for sending me material ahead of time to review and setting up this Teams meeting.

Before I get to my discussion with Gordon, you can view BCI's 2021-2022 Corporate Annual Report here and get a lot more details on all its activities.

I also encourage you to read BCI's updated Business Plan to understand its commitment its clients and the key focus areas as it lays out its strategic direction over the next three fiscal years.

The four strategic ambitions laid out in the Business Plan are the following:

  1. Strengthening the Client Value Proposition
  2. Optimizing Risk-Adjusted Returns
  3. Leveraging Digital Technology
  4. Focusing on Our Talent

Now, I read the Annual Report very carefully and thought it was extremely well written and excellent. It's not a fast read but there's a lot more detailed information and great insights in there.

In particular, I enjoyed the three questions posed to investment heads and other leaders at BCI because it provides additional insights from experts explaining their activities (Hint: Other pensions should do the exact same thing, great idea Gwen-Ann!).

Below, I embedded the key highlights on Fiscal 2022 as well as provided you with images on BCI at a glance to give you a good overview of the organization:

Next, I bring to your attention Chair Peter Milburn's letter:

I note this passage:

BCI’s clients have long-term investment horizons, so it is critical that the board have deep understanding of the forces affecting their portfolios not just today, but for decades to come. This year, we expanded the list of environmental, social and governance (ESG)-related reporting the board receives, deepening our knowledge of the ESG topics regularly brought before us. We added education on climate specific issues to our annual strategic retreat, ensuring we have both the breadth and depth of understanding needed to provide the review and governance of this complex and urgent issue. We also reviewed the ways in which BCI engages with clients on the possible impact climate change may have on their portfolios. 

We undertook our annual review of BCI’s investment benchmarks. The board looks forward to engaging with management and staff on this activity each year, and the oversight and approval of benchmarks is a core and continuous role of the board. Benchmarks are the standards against which BCI’s performance is measured, and they have meaningful implications for costs, reporting, and compensation. Our focus remains on ensuring BCI’s pooled fund benchmarks are aligned with our clients’ needs and expectations.

Next, take the time to read the message from message from Gordon J. Fyfe, Chief Executive Officer / Chief Investment Office:

There is no question that this was another extraordinary year. As the pandemic wore on, our team remained focused in an incredibly dynamic market – putting clients first, staying true to our strategy, and delivering solid results.

Delivering Performance Through Adversity

To do justice to the results, we must look beyond one year and consider the past two years. The onset of COVID-19 brought course altering changes to the financial markets and to how we work. Following the brief but dramatic drop in markets in the early days of the pandemic, the economy entered a period of recovery. While accommodative monetary policy and robust growth provided tailwinds for investors, the resulting increased demand put pressure on supply chains and spurred levels of global inflation not seen in decades, only to be compounded by commodity price shocks and added uncertainty resulting from the horrific war in Ukraine.

Against this backdrop, BCI achieved our strongest year of relative performance, adding value of $4.4 billion, representing a combined pension return of 7.4 per cent against a 4.6 per cent benchmark. Looking at performance over the past two years, since the start of the pandemic, BCI delivered an annualized return of 11.9 per cent against a benchmark of 10.7 per cent, with a value added of $4.2 billion. The team's ability to deliver value for clients, despite rapidly changing circumstances, working remotely, and the inability to travel to assess or oversee assets is truly exceptional. As a long-term investor with clients whose liabilities extend multiple decades, we are always focused on long-term performance, and over the past ten years BCI delivered a 9.1 per cent return – representing $13.2 billion of added value.

Bar chart representing the one-year, five-year, 10-year, 15-year, and 20-year value added in dollars billion by BCI for our clients.

While the past two years tested our strategy in more ways than we could have imagined, it also highlighted the resilience of our portfolio, the corporation, and our people. The work we had done since 2014 to transform BCI into an active in-house asset manager and diversify our clients' assets, paid off in spades, giving us a strong foundation. As markets fell, our clients' strong funding position and BCI's careful liquidity and capacity management allowed us to take advantage of opportunities and enter new long-term investments. Similarly, as markets rebounded, we acted on the strength to strategically sell assets – crystalizing value for clients. Throughout it all the team stayed grounded in the long term, not overreacting to short-term trends or events.

Banner Year in Private Markets

All parts of our business contributed to the strong results, however the performance of our private market assets is notable. We had a banner year in private equity delivering a total return of 29.7 per cent – well ahead of the benchmark. This success demonstrates the team's deep industry expertise and ability to identify sources of potential value and work alongside management teams to bring it to fruition.

Within our real estate portfolio, outperformance was driven by the performance and expansion of e-commerce investments, as the portfolio was well positioned to benefit from the continued trend toward a more digital world. And in infrastructure and renewable resources, we leveraged longstanding partnerships and deep networks to enter new investments in sustainability-focused assets in renewable energy, agriculture, and timber.

A Diversified Global Investor

We continued to diversify our portfolio geographically, by investment type, and by capital structure.

Aligning with our long-term strategy of actively managing a greater portion of assets internally, we recently launched an active in-house global emerging markets equity fund. Bringing this in-house provides better cost and operational efficiencies for clients, while also allowing us to strategically diversify client exposure into new regions.

We expanded our private credit program, deploying more than $2 billion into the market. Record mergers and acquisition activity and demand for loans created an ideal environment. Private credit helps diversify a portfolio and having the ability to directly structure deals with floating rates helps manage portfolio interest rate sensitivity.

We also quite literally grew our global footprint with the opening of BCI's first international office in New York City in Spring 2022, and planning is underway for the opening of an office in London, UK towards the end of this year. Having a physical presence in these locations advances our global reach and allows easier access to our existing assets and future investment opportunities.

The General Motors Building in New York City, the location of BCI’s first international office for private equity, opened in 2022.

Of course, as we expand our investment universe, we will also encounter new challenges. The Russian government’s invasion of Ukraine in February 2022 comes to mind. Given the unique nature of the situation and egregious actions of Russia, BCI took decisive action to sell Russian securities and worked with industry peers to have Russia removed from global and emerging market indices.

Putting Our People First

I take great pride in what we accomplished in the past two years. Despite the physical distance, teams found creative ways to strengthen connections, foster collaboration, advance corporate priorities, and facilitate deal-making.

The pandemic has been challenging for each of us in our own way. Loved ones have been lost, families have been kept apart, and many have struggled with isolation and mental health. At BCI, we took extra steps to put mental health and wellness first, introducing new programs and resources to support our team. This enduring commitment was a big part of our recognition as one of British Columbia's Top Employers, one of Canada's Top Family Friendly Employers, and one of Canada's Top 100 Employers, for three years running.

BCI has long had a robust student co-op and internship program. Remote work during the pandemic allowed us to expand our program and we welcomed 131 students from universities across Canada. Providing students with meaningful work experience is a critical investment in the next generation of investment professionals and key to building our talent pipeline.

As our team has now returned to our offices, trialling a hybrid model, it is wonderful to reconnect with colleagues and to experience the energy that many of us missed working from home. BCI remains committed to building a diverse, equitable, and inclusive culture that celebrates and leverages all backgrounds and ways of thinking.

Four diverse BCI employees collaborating in a boardroom.

Anticipating Challenging Markets Ahead

We are facing a very different macroeconomic and market environment, that will be much more volatile and challenging than previous years. With inflation at the highest level in 40 years, central banks are in the precarious position of having to aggressively tighten policy to rein in inflation at the same time as the global economy is showing signs of slowing. The backdrop of tighter financial conditions and elevated inflation, alongside a commodity-price shock and slowing growth means the probability of a recession is rising.

While this period will once again test our strategy and impact returns, experience has taught me that focusing on the long term and remaining grounded in our investment discipline, allows us to effectively manage risk. Our clients are in a very healthy financial position, and BCI will use our expertise to navigate short term market volatility while seizing opportunities that position our clients for the generations to come.

In Closing

I would like to thank Chair Peter Milburn and the entire BCI Board of Directors, and express my gratitude to my colleagues – including my executive and senior management team – for their hard work and commitment, without which we would not have been able to overcome the extraordinary challenges of the past two years. And, as always, thank you to our clients for their continued support.

While much uncertainty remains as we look ahead – I remain optimistic. I am privileged to work with an incredible team each day, knowing that our efforts help to create healthy financial futures while supporting the vibrancy of communities across this province that I am proud to call home.

This is an excellent message leading into my conversation with Gordon below.

Discussion with Gordon Fyfe, BCI's President & CEO and Chief Investment Officer

This afternoon I had a chance to talk to Gordon Fyfe to go over BCI's Fiscal 2022 results. 

I want to thank him again for taking the time to talk to me and also thank Gwen-Ann Chittenden for setting up this Teams meeting.

Gordon began by telling me that he and Chair Peter Milburn did brief British Columbia's Minister of Finance, Selina Robinson, a week prior to the release but he stressed "While we do brief the government ahead of the release of the annual report, BCI remains an independent organization with no political interference."

What he shared with me are many of the points he shared with the Minister:

As you know, our fiscal year ends at the end of March, same as PSP and CPP Investments and the return for the year was 7.4% against benchmark of 4.6%, so that's 281 basis points above benchmark. I've been doing this job for 19 years, 11 years at PSP and 8 years at BCI, and that 281 basis points is probably the best value-add that I've had or at least that I can remember in those 19 years. That 281 basis points is $4.4 billion of value-add that goes right through to our clients. And that's very important as it contributed to the actuarial surplus because on its own, the benchmark return was 4.6% which is below the actuarial hurdle rates which average around 6%. Without all the value-add from the 600 + people working here, the clients would have had a negative year versus the actuarial hurdle rate, so we are very pleased about that. 

Over five years, it's 8.3% with a value-add of $7.3 billion and even over a longer 10-year period, the annualized return is 9.1% representing $13.2 billion of value-add.  So the organization has been contributing very well to the clients' funds, keeping everything in balance and building up a surplus. And the surpluses are between 5% and 28%, with some smaller plans in the 5% range, most in the teens and one or two as high as 28% premium relative to liabilities. Compared to many US public pension plans, our funds and all of those at my Maple Eight peers are in great shape

Looking at where the returns came from, Private Equity had a great year in absolute terms, up 30% (29.7% vs 19.5% benchmark). Even though the numbers were smaller in Infrastructure & Renewable Resources and Real Estate, 12% and 15%, they were significantly above their benchmark. In fact, Real Estate returned more than double their benchmark and Infrastructure & Renewable Resources returned 530 basis points above their benchmark and that wasn't just marking their assets up, there were transactions in the assets, so this was really locking in value. In Private Equity, Jim (Pittman) had some really well-timed sales, so we didn't just mark assets up. Jim had some well-timed sales, as did Lincoln (Webb) in Infrastructure, they both had some legacy funds in the portfolio (he called them dogs) and the market was so hungry last year that they just blew out the dogs

But they also sold some of the good assets. Jim sold three assets he purchased over the last three to five years and the average sale price was 4X cost of acquisition. What I told my clients is just on those three assets, Jim saved, not made but saved $750 million on fees that would have been paid to a private equity fund if we had earned the same return through a fund investment rather than through a direct investment. And that $750 million pays for a multiple of times everything we have done, all the people we hired, the building we put up here and the travel and the systems, etc. I share that with clients because it wasn't easy for them watching me make all of these changes in such a short period of time, so it was important they got to see the benefit of that and the results.

Honestly, if someone asked me last year what helped you get this sort of return, it was not one thing, everything that's been done over the last eight years -- internalizing assets, going direct, diversifying outside of Canada, creating new asset classes we haven't been in before, diversifying geographically, by sector, by capital structure, asset class, all of this paid off last year. 

Over the last two years, we returned 11.9% annualized (what BCI has returned on average for its clients), again well ahead of its benchmark. But what I will say is the next two years are unlikely to be anything like the last two years. We are going into a very, very difficult period as central banks, including the Bank of Canada, will be as aggressive as they need to be to bring inflation back down toward its long-term average of 2%. And it's not only short rates, quantitative easing has become quantitative tightening so you'll see massive amounts of liquidity exiting the market and this will hit asset prices over the next 18 and 24 months.

And what I've advised my clients and the Minister of Finance and my Board of Directors is 'you are going to see red', we can't be positive if everything is going down, but we are investing all the time, so for us it's a  giant sale. But it's not only a big sale, a lot of great assets are in the hands of weak owners because they paid too much, they have too much leverage on these assets, they need liquidity and people tend to sell their best assets first.

So, we are not only going to find stuff cheaper than we otherwise would have but we will find stuff that we would never have been able to acquire during normal times.

Just go back to 2007-2009, that's exactly what happened at PSP. We were buying container terminals just outside the Sydney airport, we bought warehouses across Europe, we bought a lot of beautiful buildings in Manhattan at that time, we bought the debt, repossessed on the buildings, there's all kinds of things we can do. 

We have a very large balance sheet, we've been managing our liquidity well, everyone is prepared. I think the biggest challenge is panic as most people were not there back in 2008 in a decision-making position, feeling the pressure when the portfolio is red and going down, and I think that's a big challenge for us. A lot of organizations, not just ours, have green folks who we were not in decision-making positions in 2008-09, so they don't understand anything except a bull market and they're going to panic. So the onus is on us, the senior folks who have been through it, to talk to them now, and we've been doing this for months, telling them you're going to see red in your portfolio, we don't want you to panic, we want you to exploit other people's panic and taking advantage of that and going out finding great assets at really great prices and putting those in the portfolio. 

Why? Because if I look at PSP and the other big funds in Canada, if you look at the five years years after 2008-09, that's when we performed really well because we were out buying assets in 2008, 2009 and 2010. So that's what I want people thinking here, so when it happens, they're not panicking, they've got the liquidity, the balance sheet, so make sure they're using it.

That's the background, great returns, not only over a year but over a long period which is what is really important to the clients, but it wasn't anything special we did last year, it was a culmination of everything the organization has done in the last eight years in terms of changing the structure, the strategy, the portfolio, the people and that's put us in a good position.

We may end up looking at one or two years of negative returns, but again, we will be smiling because we will be out buying great assets, positioning the Fund for the next five years after that. 

There's a lot to digest in the passage above, a lot of wisdom and experience talking there and I'm glad Gordon shared this with me during the first part of our conversation. 

I told him the culmination of the strategy he put in place over the last eight years is indeed paying off, internalizing costs and delivering more value to their clients over the long run. 

Gordon gave me some figures from CEM Benchmarking:

The median for our peers is 55.6 basis points of total investment costs (for year ending December 2020), and we are operating at a total investment cost of 47.4 basis points. You can't operate too far below because it means you're not doing something right, you can't run this business for free.

He added:

We did $4.4 billion in value-add last year against our cost of bonuses which wouldn't even show up in the rounding. Our clients are getting great investment service. If I can create the right culture, I can attract people who can probably earn more elsewhere but they like working here, they like the culture of the organization. We give people responsibilities very early on, we allow people to make mistakes and learn from those mistakes and they get their hands on deals. Young people aren't asked to go get coffees, they're asked to work on spreadsheets and understand the deal. They are brought into the investment committee. Maybe they are not presenting but they're watching so their growth curve is very steep. Unfortunately, some of them end up leaving going to other shops, like private equity funds where they get paid significantly more but that's fine, they came here an helped us and learned. I think we created a culture where we attract the right people who enjoy the intellectual challenge and honestly, we are remunerated not too bad. 

I asked Gordon about BCI's exposure to Emerging Markets:

We have done quite a bit in the Infrastructure portfolio in Latin America, pipelines,timber, power lines, hydro lines, and we've done one large investment in India and there is another one pending regulatory approval.

If you look at the world, there are certain emerging markets where the demographics are great, growth is good and if you look at how they've been coming through the first part of this downturn, they've done well relative to historical performance and again, I am looking out five years. If you're making an investment in India or Brazil, you need to have a long investment horizon.
We then had a discussion on foreign offices and Gordon was clear that senior executives need to make the business case for opening up offices in other countries: 

BCI has an office in Victoria, Vancouver and a London office will open up in the fourth quarter. I told the senior investment leaders if they need an office to make the business case for it. Jim has made the case for a New York office, Lincoln has made the case for a London office. QuadReal, the real estate group made the case for several offices so they have one in Hong Kong, New York, London and Los Angeles which will be opening up soon. I'm not against foreign offices, it has to make sense from a business plan perspective and they have to make the case for it.
He added that there are different reasons for different asset classes to open up foreign offices,  but if the business case is there, he will support it. 

As far as private markets, he said that BCI had a later start than others in terms of shifting assets there but he admitted they're still a few years behind their Maple Eight peers and because their clients' funds are more mature, they need to be mindful of their liquidity needs:

We are making great progress but we are 5 to 10 years behind most of our peers just because the strategy that was in place before was more of an outsourcing strategy. We are definitely catching up to them but we have to balance that and the change with where our liabilities are and manage that because it is a maturing fund and we want to make sure we are never in a situation where we need liquidity and we have to sell an asset at a time other than when we want to sell it. You never want to sell something in the midst of a crisis because you need cash.
He gave me the example of the Harvard Endowment Fund having to sell assets at distressed levels back in 2008-09 and when he was at PSP, they ended up buying their New Zealand timber assets along with New Zealand Super because "Harvard needed liquidity and they didn't have it." 

He added: "Back then, Harvard was also selling private equity funds at 50 cents on the dollar" to shore up their liquidity "and it was going around everywhere".

I asked Gordon what he'd like to do in terms of strategic plans over the next three years:

I did pull back on strategic change over the last couple of years. I think people working at home was stressful enough. As you create new businesses, like when we created QuadReal, it created questions within and I didn't want people worrying during Covid because I couldn't see them because they were at home. So we pulled back our horns significantly starting in early 2020. Our job over the last two years was to keep this organization running, to not have any screw-ups and to make sure our people were safe.

But now we are back, we started talking about it. You saw Daniel (Garant) launched a company this year in New York, we are right now a significant owner of a GP, Brinley Partners. We've committed a lot of capital to be managed and we'll syndicate that down to new partners. They will manage assets for us but they will also manage for third parties. QuadReal manages assets for us but they also manage for a third party. Jim and I bought Hayfin from PSP and we own it now jointly with its managers. They are managing capital for us as well as managing it for others. 

And I think some of our existing companies out there are currently only managing assets for us or for us and and our partner and I think there is an opportunity to expand that, have a great dedicated management team with an expertise in an area whether its timber, farming, bottling or whatever it is and maybe grow that and say "you are managing money for us but is there some way we can look at that and manage money for other people as well. We are not going to be a holding company but there are going to be opportunities for us to do that here and there. 

He gave the example of Harvard Endowment and how Jack Meyer went to out to start Convexity Capital to manage money for Harvard and third parties:

There was a lot of animosity around that departure even though they continued to manage money for Harvard. It doesn't have to be a relationship based on animosity, it can be one where it's support of a great idea and we back them. The idea being if this is a war for talent, people don't have to leave the organization, if they have a dream and they are willing to work and fight for it, I am willing to back them. So that is part of a strategy as well.
Very well said and I know Gordon well enough to know he will back a great idea as long as people present a sound business case and are willing to put in the sweat equity to realize their dreams. 

I will end it at that but for me the message is clear, BCI's strategy is working, it is still evolving but the shift into private markets and new assets is working and the diversification strategy is adding significant value-add over the long run.

I thank Gordon Fyfe for sharing so many in-depth insights with me and my readers, it was honestly a great discussion where I listened a lot to really understand his points and insights.

Gordon has been around many years, he has seen it all and he admitted that it's during times of adversity where you grow and learn the most.  

He is the reason I joined PSP back in October 2003 and I never regretted that decision. I still consider him to be a great leader and think he and his management team have done an outstanding job at BCI. 

Again, please take the time to read BCI's 2021-2022 Corporate Annual Report here and get a lot more details and insights on all its activities which I wasn't able to cover here.

Below, BCI's CEO/ CIO Gordon Fyfe took part in a panel discussion on long-term strategic thinkers at the Milken Institute back in May. Take the time to watch this discussion and listen to Gordon's discussion on strategy (minute 11) and his views on many issues including why engagement works better than divestment. He also discusses why he doesn't want his managers to panic if they exhibit losses in their portfolio but instead focus on opportunities as they arise.