BCI Reports 6.1% Annual Return for Fiscal 2019

Generated an additional $2.0 billion in added value and increased assets under management to $153.4 billion

VICTORIA, BC, July 31, 2019 /CNW/ - British Columbia Investment Management Corporation (BCI) today announced an annual combined pension return, net of costs, of 6.1 per cent for the fiscal year ended March 31, 2019, versus a combined market benchmark of 4.5 per cent. This generated $2.0 billion in added value for BCI's pension plan clients.

BCI's Investment Returns and Cumulative Value Added for Fiscal 2019 (CNW Group/British Columbia Investment Management Corporation (BCI))

The excess return was largely driven by the outperformance of our private assets, finishing the fiscal year with significant returns from both income generation and capital appreciation. BCI's managed net assets increased to $153.4 billion from the previous year — reflecting investment gains of $9.0 billion, partially offset by $1.2 billion of client distributions.

As pension plans have long-term financial obligations, BCI focuses on generating long-term client wealth while protecting the value of the funds. Returns are important – for every $100 a pension plan member receives in retirement benefits, on average $75 is provided by BCI's investment activity. Over the five-year period, the annualized return was 8.2 per cent against a benchmark of 7.1 per cent, adding $6.1 billion in value. Public equities, which represents 40.5 per cent of the overall portfolio contributed more than half of the fund's overall return and excess return for the five-year period. For the 10-year period, the annualized return was 9.8 per cent against a benchmark of 8.6 per cent. BCI added $10.9 billion in value over this period.

"Our results reflect solid performance from all asset classes despite the uncertainty and volatility in the markets," said Gordon J. Fyfe, CEO/CIO of BCI. "These contributions signal the success of our strategic focus since 2015 of adopting an active, in-house approach that emphasizes private markets. Adding $6.1 billion in value over the last five years is a proud accomplishment for the entire BCI team. Our investment decisions go a long way towards building the financial futures for our clients in the province of British Columbia."

AS AT MARCH 31, 2019:

Public Markets composed of fixed income and equity investments, represents $94.9 billion and totalled 61.8 per cent of assets under management. BCI's fixed income program's assets, including Other Strategies were $32.7 billion. The program invests in public and private market debt, as well as oversees our exposure to foreign currency. For fiscal 2019, we introduced a private credit fund and a change in mandate of our Corporate Bond Fund. Our public equities program represents $62.2 billion and 40.5 per cent of assets under management. In fiscal 2019 we internalized about $6.5 billion of net assets, shifting our reliance on external managers to internal management where we seek opportunities to invest directly in public companies as well as cost-effective index programs.

Real Estate represents $24.3 billion and 15.8 per cent of assets under management. QuadReal Property Group, a company owned by BCI and created in 2016, actively manages our clients' real estate investment portfolios. The program's domestic assets totalled $17.4 billion and global assets totalled $6.9 billion. Most of the growth was attributed to increased allocations to Europe and Asia Pacific, as well as continued growth within North America. For the year ended December 31, 2018, QuadReal committed $3.1 billion to the global program increasing global assets to 28 per cent of the overall portfolio, compared to 24 per cent in the year previous.

Private Equity represents $13.0 billion and 8.5 per cent of assets under management. With a sector-focused strategy, the program invested a total of $1.8 billion to nine principal investments, increasing the ratio of principal investments to total AUM to 32 per cent. Acquisitions included Verifone Systems, a global provider of payment and commerce solutions, and Springs Window Fashions, a market leader in window coverings specializing in made-to-order products. We committed $3.0 billion to 15 funds, including six commitments to new strategic relationships.

Infrastructure represents $12.8 billion and 8.4 per cent of assets under management. Our program is diversified by geographic region and sector; and consists of a global portfolio of regulated utilities in the water, electricity and wastewater sectors, energy transmission, as well as roads, port terminals, and light rail transit. We seek meaningful equity positions allowing us to adopt an active governance approach. For the year ending December 31, 2018, we committed $1.2 billion in infrastructure assets. Notable investments were acquiring an equity interest in GCT Global Container Terminals Inc., a North American container terminal operator; and increasing our equity position in Puget Sound Energy, a Washington State-based utility company.

Mortgage represents $5.4 billion and 3.5 per cent of assets under management. BCI is a significant lender to the commercial real estate industry, focusing on direct mortgage investments with strong-yielding and attractive risk-return profiles. We have a well-established Canadian mortgage program and, as a global investor, we have expanded the program into the U.S. to provide clients with geographical diversification. Our commitments to both domestic and U.S. commercial mortgages totaled $3.7 billion for the fiscal year.

Renewable Resource represents $3.0 billion and 2.0 per cent of assets under management. We invest in long-life renewable resource assets that are essential to a growing population and increase in economic mobility. Our strategy involves investing in majority or co-controlling positions, or as a strong minority partner. We successfully closed on our first direct U.S. timber transaction, increasing the program's allocation to both timber and direct investments.

RETURN SUMMARY FOR THE COMBINED PENSION PLAN CLIENTS¹

ANNUALIZED RETURNS (%)

	1 YEAR	5 YEAR	10 YEAR	15 YEAR
PRIVATE MARKETS
Private Equity^2	16.5	17.7	15.6	12.7
Benchmark	0.7	11.6	12.6	13.3
Infrastructure^2	9.9	10.1	10.6	–
Benchmark	7.0	7.4	7.7	–
Renewable Resource^2	13.2	10.6	–	–
Benchmark	7.0	7.4	–	–
Mortgage	5.1	4.3	5.2	5.4
Benchmark	4.1	2.7	3.3	4.0
Real Estate
Domestic Real Estate	7.6	6.4	7.8	9.5
Benchmark	5.9	5.6	5.7	5.8
Global Real Estate^2	12.2	11.5	7.1	7.9
Benchmark	6.0	5.7	5.6	5.7
PUBLIC MARKETS
Public Equities
Canadian Public Equity	6.9	5.4	9.6	7.4
Benchmark	8.0	5.4	9.2	7.1
Global Public Equity	7.8	11.5	13.6	7.6
Benchmark	7.7	11.1	13.5	7.6
Emerging Markets Public Equity	(5.3)	8.0	9.8	–
Benchmark	(4.1)	7.7	9.5	–
Fixed Income
Short-Term	2.2	1.3	1.6	2.4
Benchmark	1.5	0.8	0.8	1.7
Nominal Bonds	5.6	4.2	5.0	5.1
Benchmark	5.3	3.8	4.4	4.8
Real Return Bonds	2.7	3.3	4.7	4.9
Benchmark	3.7	3.6	5.0	5.2
Other Strategies	6.1	5.1	–	–

Except as otherwise indicated, returns are time-weighted rates of return (TWRR) as at March 31, 2019. All returns are net of all costs and fees.

Investments are reported by programs within the asset classes as set out in the clients' Statement of Investment Policies & Procedures (SIPP). Benchmarks represent a weighted combination of multiple indices as specified in the clients' SIPP. The indices may vary over time.

¹ The Combined Pension Plan Clients reflect the investments of BCI's six largest pension clients, namely: BC Hydro Pension Plan; College Pension Plan; Municipal Pension Plan; Public Service Pension Plan; Teachers' Pension Plan; and WorkSafeBC Pension Plan.

² An internal rate of return methodology is used to calculate returns for Private Equity, Infrastructure, Renewable Resource, and Global Real Estate assets. The returns and benchmarks are as at December 31, 2018. Benchmarks are presented on a TWRR basis.

OUR COSTS
BCI's total costs were 58.4 cents per $100 of net assets under management; compared to 65.4 cents in fiscal 2018 — consisting of internal, external direct, and external indirect costs, all of which are netted against investment returns. By increasing the percentage of assets managed by BCI's investment professionals, we have transitioned from a reliance on third parties to a more cost-effective model of managing our clients' illiquid assets. Internal costs are operating costs directly paid by BCI and include salaries, rent, and technology and consulting fees, representing 24.1 per cent of costs for the fiscal year (or 14.0 cents per $100 of net assets under management). External direct costs are investment management fees paid to third parties to manage assets and include fees to asset managers, auditors, custodian, etc., where BCI has discretion over the buy and sell decision of the asset, representing an estimated 27.2 per cent for the fiscal year (or 15.9 cents per $100 of net assets under management). External indirect costs are investment management fees incurred on our behalf by BCI pooled investment portfolios to general partners, who have discretion over the buy and sell decision of the asset. These costs are disclosed for transparency based on underlying reports provided by these third parties and are 48.7 per cent of costs for the fiscal year (or 28.5 cents per $100 of net assets under management).

FISCAL 2019 HIGHLIGHTS

• Increased internally managed assets to 79.3 per cent from 73.3 per cent in Fiscal 2018 by our continued focus on direct investing, the introduction of the Principal Credit Fund, as well as internalizing about $6.5 billion of net assets previously managed by external public equity managers.
  
  
• Committed $13.1 billion to illiquid assets — infrastructure, mortgage, private equity, real estate, and renewable resource. Notable direct investments included: Verifone Systems, GCT Global Container Terminals Inc., and increasing our equity position in Puget Sound Energy.
  
  
• Added 74 employees to BCI, strengthening our expertise in the areas of portfolio management, asset management, risk management, information technology, and corporate and investor relations.
  
  
• Completed final phase of the transfer of property and asset management of real estate investments from BCI's former external property managers to QuadReal Property Group.
  
  
• Publicly released BCI's Climate Action Plan and Approach to the Task Force on Financial Disclosures Recommendations.

BCI's 2018–2019 Corporate Annual Report is available on our website at www.bci.ca.

ABOUT BCI
With $153.4 billion of managed assets, British Columbia Investment Management Corporation (BCI) is a leading provider of investment management services to British Columbia's public sector. We generate the investment returns that help our institutional clients build financially secure futures. With our global outlook, we seek investment opportunities that convert savings into productive capital that will meet our clients' risk/return requirements over time. We offer investment options across a range of asset classes: fixed income; mortgage; public and private equity; real estate; infrastructure; and renewable resource.

SOURCE British Columbia Investment Management Corporation (BCI)

Gwen-Ann Chittenden, Director, Corporate Communication, 778-410-7310 | [email protected]

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