B.C. pension manager posts positive return in 2022 despite market turbulence

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British Columbia Investment Management Corporation (BCI) reported a 3.5 per cent return in its latest fiscal year, weathering turbulent markets for stocks and bonds and beating its benchmark of 0.3 per cent.

Some of the strongest returns BCI earned came from private assets, such as investments in infrastructure and renewable resources, which gained 9.2 per cent, as well as private equity, which increased 4.7 per cent. Private asset returns were broadly less volatile last year, helping insulate pension plans from plunging stock and bond values.

But while sell-offs in public markets created losses for some of BCI’s peers, the B.C. pension fund manager recorded positive returns from global stocks, including in emerging markets, and from short-term bonds.

BCI’s annual return for the fiscal year ending March 31 outpaced its benchmark of by its widest margin ever, which the pension fund manager said added $4.6-billion in investment returns above what the benchmark portfolio would have delivered.

“It was very turbulent, all of 2022,” said Ramy Rayes, BCI’s executive vice-president of investment strategy and risk, in an interview. “We were positioned for it, though.”

BCI is one of Canada’s largest pension investment managers, with assets that increased to $233-billion in the most recent fiscal year. It invests money for pension plans representing public-sector workers, as well as insurance funds and B.C. special purpose funds, for a total of 32 clients.

Near the end of 2021, when the value of many assets was high with the recovery from COVID-19 in full swing, BCI started cashing in. The pension fund manager sold some private assets and shifted its investment portfolio to a more defensive stance.

“We really wanted to be in a solid position before getting into the next crisis,” Mr. Rayes said.

Looking ahead, institutional investors like BCI are still feeling the pressure. And Mr. Rayes expects that pension fund managers will have to continue to squeeze extra returns from their assets and beat their benchmarks to avoid taking losses as inflation and interest rates remain high and markets are still uncertain.

“In our view, that’s going to be the reality of the next year or two where every ounce of excess return will count and active management will be extremely important,” he said.

In the near term, BCI is leaning in part on the parts of its portfolio that are sensitive to inflation because they are based on floating, rather than fixed, interest rates. That includes its $13.5-billion private debt portfolio, where the interest charged on loans tends to rise in step with interest rates, as well as some infrastructure assets and a $7.9-billion portfolio of real estate debt, some of which will renew at higher rates.

At a moment when many investors in private markets are feeling squeezed, bumping up against their target allocations to different types of assets and working to preserve cash and liquid assets, BCI has the means to make new investment, including in private equity where the flow of deals has slowed dramatically.

“We are still very active,” Mr. Rayes said. But BCI rarely buys companies on its own, and needs partners to invest along with it, which are more difficult to find as the cost of borrowing to do deals has risen and fundraising has become tougher.

BCI is also boosting the amount of money it invests in fixed-income securities as interest rates are rising rapidly. For the first time in years, bonds are yielding strong rates of return and most of BCI’s pension fund clients are sitting on strong surpluses, allowing them to avoid chasing larger returns from riskier investments, Mr. Rayes said.

“What they’re feeling is that with higher expected returns in fixed income, why not take some of the risk off the table?” he said.

Editor’s note: An earlier version of this story incorrectly stated the sizes of BCI's private debt and real estate debt portfolios.