A float plane crosses the inner harbour in front of Parliment in Victoria.Taylor Roades/The Globe and Mail
British Columbia Investment Management Corp. made a record $35.7-billion of new investments in private assets last fiscal year, leaning into market turmoil that has strained companies’ valuations and debts.
Victoria-based BCI earned a 6.7-per-cent return on its investments in the fiscal year that ended March 31. That fell short of its internal benchmark of 7.6 per cent.
The pension fund’s performance largely tracked the same themes that shaped annual results from other large Canadian pension investors. Stocks produced strong gains, private assets underperformed and benchmarks were hard to meet because they are heavily tilted toward the largest U.S. technology companies that have soared in value.
But BCI treated a tough year in private markets as an opportunity to buy assets at a discount as inflation, tariffs and wars slowed dealmaking and amplified many investors’ thirst to raise cash.
“We’ve been preparing for chaos, so chaos is good,” executive vice-president of investment strategy and risk Ramy Rayes said in an interview. “We appreciate periods of stresses because others panic, and we get to be aggressive in those environments.”
BCI manages investments for 33 clients including B.C. public-sector pension plans, and insurance, government and institutional funds. All of those pension plans are fully funded as of March 31.
The fund’s gross assets increased to $313.7-billion, up from $295-billion a year earlier. After subtracting real estate debt and other liabilities, BCI’s net assets are $265.4-billion.
BCI received $26.6-billion of distributions in the fiscal year, in part by selling assets as well as $1.9-billion in private equity fund stakes through the secondary market.
That helped the pension fund maintain the highest level of liquidity it’s had in years, Mr. Rayes said, and be a buyer when others were forced to sell.
The pension fund has been more active in structured credit as well as continuation vehicles, where some investors look to cash out as private equity assets are rolled over to new funds with longer time horizons.
“We’re coming in, being strategic and opportunistic, and we’ve been very nimble,” he said.
OMERS chief investment officer Ralph Berg to leave pension plan on July 1
At the same time, BCI has taken a step back from active stock picking in public markets. Managers have struggled to add value as the tech companies at the forefront of a boom in artificial intelligence grow increasingly dominant.
BCI wound down two global equities strategies that made up more than 7 per cent of its public stock portfolio. Instead, its equities team is putting more emphasis on an absolute-return strategy with a larger indexing component.
It was a year “when markets rewarded concentration and punished caution,” BCI said in a news release. The fund still had strong returns from its stock portfolio, with Canadian equities up 22.9 per cent and its global shares gaining 16 per cent, while emerging markets equities increased by 28.6 per cent.
But increasingly, traditional stock picking is “not our competitive advantage,” Mr. Rayes said.
The pension fund is looking to add more Canadian assets, but is leaning toward infrastructure such as airports, energy and transportation. Any future deals will have to meet BCI’s test for risk and return, and skew toward completed assets that are already earning income, rather than new builds.
BCI has $116-billion invested in Canada, or nearly 37 per cent of its assets. “We think by 2030 we’re going to have another $30-billion out there,” Mr. Rayes said.
Higher inflation put pressure on bonds, leading to more muted returns, with BCI’s short-term bond portfolio up 2.1 per cent.
Private equity investments earned 8.1 per cent, and BCI made $6.7-billion in new investments, which was nearly three times the amount from the previous year.
Private credit earned 6.1 per cent, adding $2.7-billion of net new loans. As the market has become more crowded, with stiffer competition, BCI responded to clients’ requests for steadier returns with lower risk by making $1.8-billion of investment-grade private loans, and will launch a new strategy on July 2 to make about $10-billion of such loans over the next three years.
The infrastructure and renewable resources portfolio gained 7.6 per cent and made $4.7-billion of new commitments.
BCI’s equity investments in real estate lost 4.9 per cent as valuations continued to tumble. But its real estate lending arm gained 5.3 per cent and had its highest transaction volume to date.