IMCO Gains Four New Clients, Adds $2.6 Billion in Assets
The Investment Management Corporation of Ontario ("IMCO") announced today that it has been selected by the Financial Services Regulatory Authority of Ontario ("FSRA"), Tarion Warranty Corporation ("Tarion"), the City of Ottawa, and Ontario Clean Water Agency ("OCWA") to provide investment management services.
Following a competitive evaluation process, IMCO was chosen to manage assets totaling approximately $2.6 billion, including:
- $1.2 billion for the Pension Benefits Guarantee Fund ("PBGF"), administered by FSRA,
- $702 million for Tarion’s Guarantee Fund,
- $633 million for the City of Ottawa's OC Transpo employees' defined benefit pension plan, and
- $50 million for OCWA’s reserve fund.
IMCO is one of the largest asset managers in Canada. Managing over $73 billion in assets (as of Dec. 31, 2022), the company provides end-to-end investment solutions and fiduciary oversight to a range of public sector clients across Ontario.
"I am pleased to welcome our newest IMCO members," said Bert Clark, IMCO's President and CEO. "Public funds in Ontario who join IMCO have access to a high quality, end-to-end investment solution that is more comprehensive and lower cost than any alternative. We look forward to working with our new clients to navigate an increasingly complicated investment environment and meet their investment objectives."
FSRA is an independent Ontario regulatory agency focused on protecting consumers and pension plan beneficiaries. FSRA's Chief Executive Officer administers the PBGF, which provides protection to Ontario beneficiaries of single employer defined benefit pension plans when their employer cannot satisfy funding obligations under the Pension Benefits Act.
"FSRA is committed to promoting the good administration of Ontario pension plans and to protecting the rights and benefits of their beneficiaries," said Mark White, FSRA CEO. "The Ontario Pension Benefits Guarantee Fund is unique in Canada and protects the beneficiaries of single employer defined benefit pension plans in Ontario that contribute to the PBGF. Increased returns on PBFG assets will provide greater protection to these beneficiaries, and we are confident in IMCO's ability to improve these returns."
Tarion is an independent, not-for-profit, consumer protection organization designated by the Ontario government to administer the Ontario New Home Warranties Plan Act (ONHWPA). Tarion provides Ontario's new home buyers and owners with peace of mind that their purchase is safeguarded through the province's new home warranty and protection program, and helps homeowners understand their builder's warranty and navigate warranty claims with confidence.
"Tarion's goal is to support new home buyers and owners by ensuring that one of life's biggest investments is protected, and the guarantee fund is an important part of that protection," said Peter Balasubramanian, Tarion President and CEO. "The fund exists to protect both current and future homeowners from small issues right up to the worst-case scenario.
"Tarion undertook a rigorous year-long review of our overall investment strategy and undertook a comprehensive RFP process to select our investment partner. We believe there is strong alignment between IMCO and Tarion’s public mission and we are excited to work with IMCO to ensure a robust guarantee fund will continue to be there for homeowners when they need it most."
The City of Ottawa sponsors the closed OC Transpo employees' defined benefit pension plan, which provides retirement benefits to more than 2,000 public transit workers in Ottawa. OCWA is an Ontario Crown Agency providing solutions to municipalities, First Nations, businesses, governments, and institutions, and committed to ensuring that communities across Ontario have access to safe and reliable water and wastewater services.
IMCO will begin the process for bringing its new clients on board in 2024, following required regulatory changes and contracts completion.
ABOUT IMCO
The Investment Management Corporation of Ontario (IMCO) manages $73.3 billion of assets on behalf of our clients. Designed exclusively to drive better investment outcomes for Ontario's broader public sector, IMCO operates under an independent, not-for-profit, cost recovery structure. We provide leading investment management services, including portfolio construction advice, better access to a diverse range of asset classes and sophisticated risk management capabilities. As one of Canada's largest institutional investors, we invest around the world and execute large transactions efficiently. Our scale gives clients access to a well-diversified global portfolio, including sought-after private and alternative asset classes. Follow us on LinkedIn and X@imcoinvest.
IMCO's CEO Bert Clark shared this with James Bradshaw of the Globe and Mail:
“For all of our clients we provide them with an end-to-end investment solution that’s cheaper than anything they could do on their own,” said IMCO chief executive officer Bert Clark in an interview. “And we now know that because we’ve competed on multiple occasions to win the clients that are joining, and that’s what our clients told us.”
IMCO’s mandate allows it to invest the assets of public-sector pension plans or investment funds in Ontario, including those of government agencies, municipalities, Crown corporations, non-profits and universities or colleges. That gives it a pool of about 100 potential clients managing $140-billion of assets that it can pitch to win new business. But Mr. Clark said convincing clients to sign on is a slow process and will likely stay that way.
“It’s taken longer than I thought, but in retrospect it’s not taken longer than was realistic. I just probably had an overly optimistic perspective on how long it would take,” he said.
He now expects IMCO could add one to two new clients in a typical year. “Consolidation isn’t going to be a quick process,” he said.
In FSRA’s case, IMCO will manage the $1.2-billion Pension Benefits Guarantee Fund, which protects beneficiaries in single-employer pension plans when bankrupt employers can’t meet their obligations to pensioners. Increasing investment returns for the guarantee fund “will provide greater protection to these beneficiaries, and we are confident in IMCO’s ability to improve these returns,” FSRA CEO Mark White said in a statement.
Similarly, IMCO will manage Tarion’s $702-million guarantee fund, which provides protection to new homeowners making warranty claims, “from small issues right up to the worst-case scenario,” said Tarion CEO Peter Balasubramanian.
For the City of Ottawa, IMCO will manage a $633-million defined benefit pension plan for transit employees that is closed to new members and will wind up over time. And it will also manage a $50-million reserve fund for the OCWA, a Crown agency offering safe-water solutions to municipalities, First Nations and businesses, among others.
Importantly, Mr. Clark said IMCO now manages almost every type of client that falls within its mandate, including municipal and provincial funds, both closed and open pension plans, as well as insurance and reserve funds.
“The reality is most public funds and public organizations don’t like to be first movers,” he said. When IMCO courts a new client, “it gives us the ability to say, ‘We manage one of those already, you don’t need to be the first.’”
The pitch IMCO makes to prospective clients promises lower costs, with fewer fees paid to outside managers because of its larger scale and capacity to make direct investments. It also offers advice on the best mix of assets for a given fund, greater access to private- market investing in asset classes such as private equity and infrastructure, and risk management across the whole portfolio.
IMCO had disappointing investment results in 2022, with an average loss of 8.1 per cent across its clients’ portfolios, but still beat its benchmark. After three tumultuous years in markets, the investing outlook as 2023 draws to a close “looks significantly better today than it did back at the start of the year,” Mr. Clark said.
IMCO did have a disappointing 2022, losing 8.1%, but still managed to dole out millions in executive compensation as it etched ahead of its internal benchmark which was down 8.4%.
Since inception (or over the three years since assets have been managed according to IMCO strategies) the annualized return was 2%, compared to a consolidated benchmark return of 1.6%, representing 0.4 percentage points in net value add.
The losses can be explained by IMCO's asset mix which is roughly 55% weighted into public markets:
As far as the new clients, even though it's a modest amount relative to overall assets, it's welcomed news at IMCO which is looking to grow its assets one client at a time.
CEO Bert Clark has been criticized for not bringing new clients on board but to be fair, he's right, it takes time and realistically I doubt they will onboard more than one or two a year.
Unlike its larger peers at the Maple 8, IMCO is competing for assets and the pitch it makes to prospective clients is promising lower costs, with fewer fees paid to outside managers because of its larger scale and capacity to make direct investments.
It also offers advice on the best mix of assets for a given fund, greater access to private- market investing in asset classes such as private equity and infrastructure, and risk management across the whole portfolio.
In Ontario, CAAT Pension Plan, OPTrust and UPP are all looking to beef up their assets but IMCO is the largest Crown corporation pension fund and is now well placed to offer prospective clients a well diversified portfolio between public and private assets.
Its CIO Rossitsa Stoyanova and her investment team are doing a decent job but it's early days for this organization.
Still, they have managed to gear up all the teams and have proper risk oversight.
IMCO will eventually grow its assets well past $100 billion over the next decade and figure among Ontario's largest pension funds next to OTPP and OMERS.
I hope they've gotten their governance issues ironed out and the organization is more stable going forward (meaning less turnover of investment staff).
For their sake, trying to attract prospective clients, they better have.
Last note to some of you who call me to pooh-pooh on IMCO: I'm not their friend nor their enemy, I'm indifferent and call it like I see it. If they're doing a great job, I will praise them and if they're doing a lousy job, I will analyze their results in detail to understand why.
I definitely don't get paid enough money to share my insights with everyone reading this blog, just keep that in mind before you contact me to disturb me (my attention is 100% focused on my newborn and analyzing markets these days, period).
Below, Andrew Ross Sorkin of The New York Times at the annual DealBook Summit interviews JPMorgan Chase CEO Jamie Dimon who looks at the conflicts in Gaza, Ukraine and elsewhere, combined with inflation and rising interest rates at home, explaining why he sees ominous warning signs.
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