BCI Annual Report

BCI F2019 Corporate Annual Report

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7 ANNUAL REPORT 2018–2019 All asset classes generated positive returns for the year. In particular, private markets contributed largely to overall excess returns, or added value, while public equities accounted for the majority of absolute returns. A large percentage of our assets under management will remain in public markets, which includes fixed income and public equities. However, we continue to repatriate public equity funds from external managers to internal asset management. We are actively seeking opportunities to invest or co-invest directly in public companies or allocate to absolute return managers, derivatives, and cost-effective index programs. This year, we internalized approximately $6.5 billion of net assets by terminating mandates with low-conviction managers. BCI continued to expand its suite of credit products with the introduction of a private debt fund and a change in mandate that introduced investment grade U.S. corporate debt. Challenged with a persistent low-for-longer interest rate environment, these broader credit mandates offer our clients scale, diversification, and the opportunity to capture superior risk-adjusted returns. We also completed implementation of a derivatives program, which will allow BCI to trade up to 10 different derivative instruments. Of note, our public equities portfolio team completed its first co-investment: a privately negotiated transaction with publicly traded Stella-Jones, a leading North American producer and marketer of pressure treated wood products. The transaction is an absolute return investment opportunity that adds diversified returns to our clients' public market portfolio. The transaction also firmly establishes the profile of our team and will lead to more exposure to private placement opportunities in public companies. In private markets, BCI's private equity program committed more than $4.8 billion in new capital globally this year. Key transactions included Verifone Systems, a global provider of payment and commerce solutions at the point of sale, and Springs Window Fashions, a market leader in window coverings specializing in made-to-order products. Our infrastructure program committed $1.2 billion in new capital. The team continues to invest in core assets that operate in stable regulatory environments in developed markets, have high barriers to entry and provide our clients with low return volatility. We focus on majority or co-controlling equity positions, allowing us to adopt an active governance approach. Notable direct investments included: acquiring an equity interest in GCT Global Container Terminals, a North American container terminal operator; and increasing our equity position in Puget Sound Energy, a Washington State-based electric and gas utility company serving nearly two million customers. Large deployment to direct investments increased the program's relative exposure to direct investment versus funds to 84 per cent. Real estate and mortgage are key investment areas for us. In our real estate program, we completed the transfer of asset and property management responsibilities for our domestic and global real estate portfolios to QuadReal Property Group, a company owned by BCI. QuadReal entered into an agreement with RBC Global Asset Management Inc. to allow other institutional investors to co-invest in a select portfolio of its Canadian real estate assets, valued at $7 billion. The new partnership allows QuadReal to raise capital on behalf of our clients and deploy into the international market as well as higher yielding large-scale development projects within Canada. For the fiscal year, our mortgage program committed a total of $3.7 billion to commercial mortgages in Canada and the U.S., where we are actively expanding our footprint.

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