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
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
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
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.
INFRASTRUCTURE & RENEWABLE RESOURCES
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.
REAL ESTATE EQUITY AND REAL ESTATE DEBT
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.
OUR COSTS
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.
INVESTMENT AND CORPORATE HIGHLIGHTS
- 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.
- Committed $6.8 billion in total client capital for private equity investments, the most of any year for the program.
- 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.
ABOUT BCI
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. For more information, visit our website BCI.ca or follow us on LinkedIn.
Attachments
- BCI Combined Pension Plan Annualized Returns, Cumulative Value Add and Assets Under Management
- BCI Return Summary for the Combined Pension Plans
