Pension manager beats market with strong returns
British Columbia Investment Management (BCI), the province's public pension manager, has reported significant equity gains and is exploring new investment avenues in real estate, while other pension funds are reducing their exposure to certain property sectors.
“The markets are still relatively slow, so we need to be creative in our dealmaking activity,” Ramy Rayes, executive vice-president of investment strategy and risk at BCI, told Bloomberg. “In our case, it’s going to be about value creation, about how we can engineer returns in areas that we haven’t necessarily done in the past.”
Rayes said the pension fund is looking at opportunities in real estate debt, particularly in sectors like industrial, multifamily, and student housing. They're also making bets on other asset classes, including private credit and infrastructure debt.
BCI's private debt holdings yielded a 13.3% return for the fiscal year, with the fund allocating around $2 billion to the asset class, focusing on middle and lower middle markets and expanding into Asia.
“We don’t want to be just the ones buying the paper, we want to be the ones behind the origination or the anchoring of this business,” Rayes said.
Overall, the fund achieved a 7.5% return, driven by strong performances from global and Canadian stocks, which returned 26.5% and 14.6%, respectively.
BCI's net assets were valued at $229.5 billion ($168 billion), with about 83% of the assets managed in-house, compared to 59.4% a decade ago.
However, BCI's real estate equity investments lost 5% as valuations adjusted to rising interest rates, with the global office sector most impacted. In response, BCI has reduced its office exposure to 19% of property holdings, down from 40% in 2016.
Read next: Canadian pension funds rethink real estate investments after $1.24trn loss
Canada’s largest pension plans, including the Canada Pension Plan Investment Board, have been decreasing their exposure to office and retail assets due to high borrowing costs and structural shifts in the sector. The Canada Pension Plan Investment Board now holds about 8% of its assets in property, down from 12% five years ago.
In private equity, BCI committed $2.9 billion to fund investments and existing direct investments to support company growth.
Rayes acknowledged the current slowdown in deal activity but remained optimistic about the future.
“As rates start falling, or at least when the market has a strong conviction that rates are on their way down, you will see the activity go up,” he said. “Right now, it’s a bit of a standstill and everybody’s watching.”
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