A Discussion With Vestcor's CIO on Their Solid 2024 Results

Earlier today, Vestcor announced it earned 12.2% net of fees, outperforming its benchmark:

Fredericton, NB — Vestcor Inc. (Vestcor), Atlantic Canada’s largest investment management firm, is proud to announce a year of strong positive returns for its clients. Vestcor achieved overall investment portfolio returns of 12.2% net of fees, outperforming its benchmark by 0.1%. Through a strong investment performance, Vestcor’s assets have grown by over $2 billion in 2024, to a total of $23.1 billion. As a full-service investment manager and pension administration organization, Vestcor is committed to meeting the long-term investment objectives of all its clients.

Vestcor’s clients require a disciplined, low-risk approach with strong internal active management. Vestcor has successfully exceeded long-term investment policy benchmarks while safeguarding client portfolios, adding $781 million, after investment management fees, relative to benchmark performance for the four-year period ending December 31, 2024. Vestcor’s dynamic investment strategy continued to be a key differentiator. Within our Pension and Benefits Administration Teams, Vestcor met client performance targets, all while managing the high volumes of applications and increased plan membership.

“We are proud of the results we’ve delivered for our clients,” said Sean Hewitt, President and CEO of Vestcor. “Our approach of focussing on strong risk-adjusted returns has helped shield client portfolios from potential losses during turbulent times. Furthermore, our active management, driven by the thoughtful execution of our internally managed active investment strategies, has allowed our clients to earn net investment returns that exceeded benchmarks in 2024 and over the long-term. This accomplishment is a reflection of our team’s expertise and commitment to our clients’ financial success – and most importantly, the financial well-being of the 114,000 pension plan members we serve on behalf of our clients.”

Vestcor’s commitment to providing our clients with customized investment solutions has been central to this success, as the team specializes in adapting strategies to meet the unique goals and inherently low-risk tolerances of each client, especially its target benefit and shared risk plan clients. Through ongoing market analysis, rigorous risk management, and forward-thinking investment choices, the firm has reinforced its reputation as a trusted partner in navigating today’s complex financial landscape.

As a result of these efforts, Vestcor is not only fulfilling its promises to clients, but is also positioning itself for continued success in the future, protecting the financial security of its clients and their members.

The organization also recently launched it’s third Responsible Investment Report, available at vestcor.org/responsibleinvestment.

Vestcor’s 2024 Annual Report will be published in June. Further information about Vestcor is available online at vestcor.org.

ABOUT VESTCOR INC.

A Partner in Creating and Delivering Sustainable Financial Security

Vestcor is an independent not-for-profit company located in Fredericton, New Brunswick. It provides global investment management services to public-sector client groups representing over $23 billion in assets under management as of December 31, 2024, and administration services to 11 public sector pension plans and five employee benefit plans.

Vestcor’s team of more than 160 service professionals provides innovative, integrated, and cost-effective investment management and pension and benefit administration services solutions to Atlantic Canadian clients. Vestcor currently services the requirements of approximately 114,000 pension plan members, 44,000 employee benefits members, and 150 participating employer groups. Further information about Vestcor is available at vestcor.org.

As stated in the press release, Vestcor's annual report will be released in June and will be made available here.

This afternoon, I had a brief discussion with Vestcor CIO Jon Spinney to go over the results.

I''d like to begin by thanking him and also thank Liz-Anne McCleave for facilitating this discussion.

Jon began by giving me an overview of their results:

We had a pretty good year so we are quite happy with how things went overall.

The portfolio has navigated what we've been experiencing in 2025 fairly well so we continue to navigate markets and focus on delivering for our pension members.

In terms of looking at 2024 results, like you said, it's a public markets story. Our Public Equities portfolio delivered 22.6%, better than the benchmark which was 21.7%.

Jon told me the strong results in Public Equities do not include Long/ Short hedge funds, that is in a separate bucket.

He went on:

Generally speaking, we have three main equity buckets: general market cap, a lot of passive there, we have a lot of low-vol equities, some of that is required by regulation and we have a fairly tight risk control for most of our clients so we derisk our portfolio as much as we can and we actively manage that very significantly. And that's Canada, Global and Emerging Markets portfolios.

He said derisking the portfolio means they select lower risk stocks targeting a .7 beta and then run a diversified quant stock selection program on top of that across Canada, Global and Emerging Markets.

Quite impressively, they beat their Public Equities benchmark last year being underweight Mag-7 stocks.

Interestingly, Jon explained why they like Emerging Markets:

In general, Emerging Markets was a really good source of alpha for us last year and over the last several years as well. Very fertile hunting ground for us for public market equities.

We have been really successful in building out our stock selection programs with our internal quant team here and been really successful outperforming both market cap and low-vol benchmarks.

In emerging markets, we are looking for attractively valued companies with good momentum and reasonable quality. That's been very successful in recent years.

I shifted my attention to Fixed Income where he shared this:

Fixed Income, modest outperformance relative to our benchmark.  Our Fixed Income book if you include everything was up 5.6% compared to a benchmark of 5.3%., basically flat or slightly better than benchmark but it contributed to overall performance.

I asked him in terms of total asset mix, if Public Equities and Fixed Income make up 60% of the total portfolio and he replied: "I would say 60-65% is in Public Equities and Fixed Income and the rest is in various alternatives."

We moved on to private markets and I asked him if there are still issues in Real Estate:

Still navigating some challenges in real estate, we've definitely seen sectoral shifts. That combined with interest rates moving higher in previous years caused some challenges.

I think it was a fairly stable year for us in the Real Estate portfolio. It was up 3.3% compared to a benchmark which was up 1.5%. Let's say not extravagant returns but solid performance on the Real Estate side.

Infrastructure was a strong performer for us in 2024. Total Infrastructure portfolio was up 12% compared to a benchmark of 8.5% which for us is CPI + 4%.

I interjected noting their performance in Real Estate was better than larger peers, and asked why.

Jon responded:

Relative to peers, we would have a lot more Canada, a lot less international. 

We are also overweight industrial which has been good for the past several years.

Those are major contributors for us, we didn't have any major currency issues to deal with on international and being overweight industrial and multi-residential helped as well.

I asked him if Vestcor is a direct investor in real estate and infrastructure:

I'd say we do both. Overall for private real estate, roughly 60% is direct or co-invest and 35 to 40% would be with funds.

In infrastructure, a little higher tilted toward funds given our smaller size, it's a little bit difficult to do as much on the JV or direct side. So there we are 50-60% in funds and 30-40% in co-invest.

I noted that in infrastructure there are the big well known funds but there are also a lot of newer niche funds (see Aaron Vale's guest comment on the annual Berlin Infrastructure conference).

I asked Jon how they performed so well in Infrastructure:

For us, we were significantly overweight on things that performed well recently, not necessarily going to be immune to challenges we are facing going forward, things like port assets for example, exposed to trade obviously. It will be interesting to see how things navigate there but it's been strong over the past several years.

Generally for us, being smaller, we can take advantage of smaller opportunities but at the same time, we have a track record of being able to make decisions fairly quickly in terms of acting on JV and co-investment opportunities. We are still shown interesting opportunities both from existing partners we work with and new funds we haven't worked worth in the past as well, so it's a mix of those two things.

Next we moved to discussing Private Equity:

Private Equity has been challenged for sure.Like most funds we benchmark private equity to public equity benchmarks, for us that is MSCI World which was up 29% last year. 

Our Private Equity portfolio did well, it was up approximately 15% in 2024 but still that was the one area for us where value add relative to benchmark was significantly challenged. And that has been a consistent story for us over the last two years. PE is performing well but not able to keep up with high-flying public equity markets.

He added in PE, it's 70% funds and 30% directs and co-investments and over the past four years they have built out the Asia Pacific and Emerging Markets exposure in that portfolio but it is heavily tilted to the US and Europe.

I then moved the discussion to macro to discuss his views on rates, public vs private markets given the tariffs and heightened policy uncertainty.

Specifically, I asked him if he thinks the tariffs will ultimately be inflationary or deflationary and how doe she see rates and opportunities in private and public markets, as well as private credit. 

Jon replied:

We are doing more and more in Private Credit now but fortunately we didn't a lot pre-Covid, so we are in the fortunate situation of being selective and picking up opportunities that make sense starting with a clean sheet. So we are doing it but luckily we don't have any legacy issues to deal with. 

He told me they did some private credit deals in the past when a portfolio company needed financing but it's really in the last couple of years that their clients asked for a dedicated portfolio there.

He went on to answer my question on rates, policy uncertainty and whether tariffs are ultimately inflationary or deflationary:

It's really tough to know how it's going to play out. Obviously, tariffs if we see them play out the way it seems to be doing right now, it's not going to be favourable to the global economy and I think that's going to be disinflationary in the medium term. 

Overall, we know there's a modest supply shock when tariffs are put in place but overall it's not positive for economic activity. Over the long run activity relative to capacity is what's going to drive inflation.

In terms of what that means for pension fund allocations, I think it's really a case of using your favourable liquidity provisions, using your balance sheet effectively to look beyond what's going on in the short-term and make allocations that make sense for the medium to long term. When pension funds are trying ot be too tactical in the short term, you're more likely to add noise to your portfolio as opposed to being accretive on your returns.

I keep coming back to issues on valuations, which markets, which asset classes are more attractively valued and allocating capital there when it makes sense. For example, global equities have been somewhat attractive relative to North American equities. I think that's something pension funds are nicely positioned to take advantage of. 

And then finally, being careful on the alternative asset classes, finding exposures that absolutely make sense in the context of your total portfolio -- that is not taking on too much GDP risk in your infrastructure book, not getting too far off in quality spectrum in private debt is going to be really important I think.

I agree especially since Private Debt has been battle tested in a recession yet.

Jon made the good point that you have to look at alternatives holistically in terms of your total portfolio, "making sure you're not stacking up too many asset classes and strategies that are all going to be demanding liquidity at the same time."

On tariffs, he said if there is a full blown trade war then we will see pockets of inflation in some sectors but overall the real risk is a marked decline in economic activity and that is disinflationary.

Vestcor is more exposed to Canada "by choice" relative to larger Maple Eight peers and "there are opportunities in Canada that still move the needle for us."

He told me roughly 55% of all their assets are in Canada (including Fixed Income). 

Lastly, I asked him about Vescor's new CEO Sean Hewitt and he told me he's working hard on their new five year strategic plan and once it's finalized, he'll be happy to share it with me.

I ended by noting that what we are living now in terms of the fallout from US trade policy on markets feels wonky to me and I've lived through the tech wreck, the 2008 GFC, Covid more recently and it seems odd and endless.

Jon noted he missed the tech wreck from a professional perspective but lived through the GFC and obviously Covid and this was self-inflicted wound for the global economy and hopefully cooler heads prevail and we can move forward with a more stable business environment.

He added they run a fairly low risk portfolio -- overall their total equity beta on the entire fund is .45 (with Infra and Real Estate). "We've historically been more reliant on benchmark relative returns than anyone else in terms of just keeping up with what pensions require and that's going to be a tricky thing to navigate so active management will continue to be important for us."

Great discussion, I thank Jon Spinney again for taking the time to talk to me, he's a sharp CIO and I always enjoy talking to him. 

Below, learn more about Vestcor. Providing investment management and pension and employee benefits administration services to the public sector.

Also, UBS’ David Lefkowitz, Moody’s Mark Zandi and Bleakley Financial’s Peter Boockvar, join 'The Exchange' to discuss markets, the trade war and potential for a recession.

Laslty, KKM Financial’s Jeff Kilburg and Albion Financial’s Jason Ware, join 'Power Lunch' to discuss investors turning more bearish on the markets.