BCI's 2021-2022 Corporate Annual Report: Local Purpose, Global Approach

A message from Gordon J. Fyfe, Chief Executive Officer / Chief Investment Officer

There is no question that this was another extraordinary year. As the pandemic wore on, our team remained focused in an incredibly dynamic market – putting clients first, staying true to our strategy, and delivering solid results.

Delivering Performance Through Adversity

To do justice to the results, we must look beyond one year and consider the past two years. The onset of COVID-19 brought course altering changes to the financial markets and to how we work. Following the brief but dramatic drop in markets in the early days of the pandemic, the economy entered a period of recovery. While accommodative monetary policy and robust growth provided tailwinds for investors, the resulting increased demand put pressure on supply chains and spurred levels of global inflation not seen in decades, only to be compounded by commodity price shocks and added uncertainty resulting from the horrific war in Ukraine.

Against this backdrop, BCI achieved our strongest year of relative performance, adding value of $4.4 billion, representing a combined pension return of 7.4 per cent against a 4.6 per cent benchmark. Looking at performance over the past two years, since the start of the pandemic, BCI delivered an annualized return of 11.9 per cent against a benchmark of 10.7 per cent, with a value added of $4.2 billion. The team's ability to deliver value for clients, despite rapidly changing circumstances, working remotely, and the inability to travel to assess or oversee assets is truly exceptional. As a long-term investor with clients whose liabilities extend multiple decades, we are always focused on long-term performance, and over the past ten years BCI delivered a 9.1 per cent return – representing $13.2 billion of added value.

While the past two years tested our strategy in more ways than we could have imagined, it also highlighted the resilience of our portfolio, the corporation, and our people. The work we had done since 2014 to transform BCI into an active in-house asset manager and diversify our clients' assets, paid off in spades, giving us a strong foundation. As markets fell, our clients' strong funding position and BCI's careful liquidity and capacity management allowed us to take advantage of opportunities and enter new long-term investments. Similarly, as markets rebounded, we acted on the strength to strategically sell assets – crystalizing value for clients. Throughout it all the team stayed grounded in the long term, not overreacting to short-term trends or events.

Banner Year in Private Markets

All parts of our business contributed to the strong results, however the performance of our private market assets is notable. We had a banner year in private equity delivering a total return of 29.7 per cent – well ahead of the benchmark. This success demonstrates the team's deep industry expertise and ability to identify sources of potential value and work alongside management teams to bring it to fruition.

Within our real estate portfolio, outperformance was driven by the performance and expansion of e-commerce investments, as the portfolio was well positioned to benefit from the continued trend toward a more digital world. And in infrastructure and renewable resources, we leveraged longstanding partnerships and deep networks to enter new investments in sustainability-focused assets in renewable energy, agriculture, and timber.

A Diversified Global Investor

We continued to diversify our portfolio geographically, by investment type, and by capital structure.

Aligning with our long-term strategy of actively managing a greater portion of assets internally, we recently launched an active in-house global emerging markets equity fund. Bringing this in-house provides better cost and operational efficiencies for clients, while also allowing us to strategically diversify client exposure into new regions.

We expanded our private credit program, deploying more than $2 billion into the market. Record mergers and acquisition activity and demand for loans created an ideal environment. Private credit helps diversify a portfolio and having the ability to directly structure deals with floating rates helps manage portfolio interest rate sensitivity.

We also quite literally grew our global footprint with the opening of BCI's first international office in New York City in Spring 2022, and planning is underway for the opening of an office in London, UK towards the end of this year. Having a physical presence in these locations advances our global reach and allows easier access to our existing assets and future investment opportunities.

Of course, as we expand our investment universe, we will also encounter new challenges. The Russian government’s invasion of Ukraine in February 2022 comes to mind. Given the unique nature of the situation and egregious actions of Russia, BCI took decisive action to sell Russian securities and worked with industry peers to have Russia removed from global and emerging market indices.

Putting Our People First

I take great pride in what we accomplished in the past two years. Despite the physical distance, teams found creative ways to strengthen connections, foster collaboration, advance corporate priorities, and facilitate deal-making.

The pandemic has been challenging for each of us in our own way. Loved ones have been lost, families have been kept apart, and many have struggled with isolation and mental health. At BCI, we took extra steps to put mental health and wellness first, introducing new programs and resources to support our team. This enduring commitment was a big part of our recognition as one of British Columbia's Top Employers, one of Canada's Top Family Friendly Employers, and one of Canada's Top 100 Employers, for three years running.

BCI has long had a robust student co-op and internship program. Remote work during the pandemic allowed us to expand our program and we welcomed 131 students from universities across Canada. Providing students with meaningful work experience is a critical investment in the next generation of investment professionals and key to building our talent pipeline.

As our team has now returned to our offices, trialling a hybrid model, it is wonderful to reconnect with colleagues and to experience the energy that many of us missed working from home. BCI remains committed to building a diverse, equitable, and inclusive culture that celebrates and leverages all backgrounds and ways of thinking.

Anticipating Challenging Markets Ahead

We are facing a very different macroeconomic and market environment, that will be much more volatile and challenging than previous years. With inflation at the highest level in 40 years, central banks are in the precarious position of having to aggressively tighten policy to rein in inflation at the same time as the global economy is showing signs of slowing. The backdrop of tighter financial conditions and elevated inflation, alongside a commodity-price shock and slowing growth means the probability of a recession is rising.

While this period will once again test our strategy and impact returns, experience has taught me that focusing on the long term and remaining grounded in our investment discipline, allows us to effectively manage risk. Our clients are in a very healthy financial position, and BCI will use our expertise to navigate short term market volatility while seizing opportunities that position our clients for the generations to come.

In Closing

I would like to thank Chair Peter Milburn and the entire BCI Board of Directors, and express my gratitude to my colleagues – including my executive and senior management team – for their hard work and commitment, without which we would not have been able to overcome the extraordinary challenges of the past two years. And, as always, thank you to our clients for their continued support.

While much uncertainty remains as we look ahead – I remain optimistic. I am privileged to work with an incredible team each day, knowing that our efforts help to create healthy financial futures while supporting the vibrancy of communities across this province that I am proud to call home.

Gordon J. Fyfe

Chief Executive Officer / Chief Investment Officer