British Columbia Investment Management Reports 12.4% Annual Return

Fund’s new investment model emphasizes active management over indexing.

The C$135.5 billion (US$108.2 billion) British Columbia Investment Management Corporation (BCIMC), one of Canada’s largest institutional investors, reported an annual combined pension return, net of costs, of 12.4% for fiscal year 2017, beating a combined market benchmark of 11.7%

The return generated C$680 million ($542 million) in added value for its pension plan clients, said BCIMC. Infrastructure, private equity, real estate, and renewable resources outperformed for the calendar year, and exceeded benchmark returns. The company said that tactical decisions to underweight fixed income in favor of public equities provided increased returns.

“A key contributor was the outperformance of global equities relative to their benchmark,” said BCIMC. “In a low-return environment for fixed income, the decision to underweight nominal bonds added value, and was further enhanced by outperformance relative to the benchmark. Strong performance in illiquid asset investments also provided value-add.”

Gordon Fyfe, BCIMC’s CEO and CIO, said that over the past 20-year period, the pension fund exceeded its actuarial return requirements, and has added $7.7 billion in cumulative value-add.

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“Although annual returns provide us with a short-term perspective,” said Fyfe, “it is the longer term that matters.”

BCIMC has consistently outperformed its benchmark over the past one-year, four-year, 10-year, 15-year, and 20-year periods. Over the past four years, the fund returned 10.1%, compared to a benchmark of 9%; over the past 10 years, it has returned 6.6%, compared to a benchmark of 6%; over the past 15 years the fund has returned 7.4%, compared to a 6.8% benchmark; and over the past 20 years, it returned 7.7%, compared to a benchmark of 7.3%.  

BCIMC’s “new investment model emphasizes a greater degree of active management over indexing strategies, and creating new and diversified sources of market return and active return to increase the probability of meeting our clients’ actuarial rate of return,” said Fyfe.

“Our strategy refocuses BCIMC to become an in-house asset manager that uses sophisticated investment strategies and tools,” said the company in its annual report. “By increasing the percentage of assets managed by BCIMC’s investment professionals, we will transition from a reliance on third parties to a more cost-effective model of managing illiquid assets.”

In fiscal 2017, the fund increased its managed net assets C$13.6 billion from the previous year, to C$135.5 billion. The fund’s asset mix as of  March 31, 2017 was: Public Equities (48.3%, or C$65.5 billion); Fixed Income (19.2% or C$26 billion); Real Estate (13.5% or C$18.2 billion); Infrastructure (8.1% or C$11.0 billion); Private Equity (5.8% or C$7.8 billion); Mortgages (2.1% or C$2.9 billion); Other Strategies–All Weather (1.5% or C$2.1 billion); and Renewable Resources (1.5% or C$2 billion).

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Unite to Vote on Royal Mail Pension Proposals

Union doesn’t offer a recommendation, but calls proposals “best achievable” package.

UK-based union Unite said it will hold a consultative ballot of its 6,000 Royal Mail managers on the latest pension proposals offered by the company’s management. 

The Royal Mail said in a statement that it is offering members the choice of joining either a defined benefit cash balance plan, or a defined contribution plan. Royal Mail said it is one of few companies offering to replace one defined benefit plan with another. The balloting of members started this week, and will close on Aug. 7.

“We have had many discussions with the company over the last few months and these have been difficult,” said Brian Scott, Unite officer for the Royal Mail. “However, the Unite negotiating team considers that what is on offer is the best achievable in the circumstances.” 

Despite Scott calling the offer the “best achievable” one, the union said that it would not make a recommendation to its members on the package.

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“We are committed to holding a membership consultative ballot on the Royal Mail’s latest proposals,” Scott said. “We are not making any recommendation. We think it is important that Unite members have an opportunity to express an opinion on what is being put forward by the company.” 

Scott said that the latest position is an improvement from the original proposal.
“One of the main developments is that we will keep the defined benefit pension scheme open, and the lump sum approach being put forward will become a separate section of that scheme,” said Scott. “This will reduce any adverse impact on members’ future retirement incomes.”

Unite has about 6,000 members working for the Royal Mail, which became a privately owned company in 2013. In April, the 500-year-old postal service said it will close its defined benefit pension plan by the end of March 2018 due to diminishing funds.

 

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