BCI Annual Report


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Private Equity Investing $20.7 billion of long-term capital in high-quality private company equity opportunities around the globe returns, and providing the network to source co-investments and other direct opportunities. Collectively since 2015, the program has committed approximately $15.0 billion in fund investments and has directly invested in over 20 operating companies, which offer significant governance rights and board seats. We approach the market by sector, with specializations in business services, consumer, financial services, healthcare, industrials, and technology, media and telecommunications. Investment opportunities primarily originate and are managed in collaboration with strategic investment partners with specific sector and geographical expertise and drive attractive risk-adjusted returns. We place considerable emphasis on the alignment of interests between shareholders and management teams, a long-term investment horizon to fully capture value creation opportunities, and active governance to effect change. This allows greater oversight of our portfolio companies and provides opportunities to collaborate with management teams on strategic, operational, and financial matters. Our hands-on approach to portfolio management establishes greater alignment with BCI's ESG principles, responsible investing approach, and commitment to diversity and inclusion. The private equity program continues to focus on building the diversity of our team to support the upward trajectory of the program. Developing key performance indicators and ESG principles, as well as integrating diversity, inclusion, and equality into our investment strategy, remains a focus as we manage and grow the portfolio. The team is also focused on opening the first international office in New York City in fiscal 2022. OUR APPROACH BCI has invested in private equity for over 20 years. Our program is well diversified by both geography and sector, and invests directly in companies and indirectly via funds. We make significant minority and control investments across a variety of industry sectors. Additionally, we invest in a diverse array of primary funds, syndicated co-investments, and participate in the secondary market. In April 2016, under a new strategy and leadership team, we began restructuring the program to allocate a greater proportion of capital to direct investments. As a result, the portfolio ratio has shifted from under 20.0 per cent to approximately 37.0 per cent in direct investments, producing substantial returns for our clients and delivering significant fee savings. However, fund investments remain critical in diversifying the portfolio, generating consistent risk-adjusted PERFORMANCE ANALYSIS Given the extended holding periods for private equity investments, results are more meaningful over a longer time frame. On a five-year basis, the private equity program returned 17.4 per cent 1 , compared to a benchmark of 11.4 per cent. Outperformance is attributed to our relationships with best-in-class strategic partners. This represents over $10.2 billion of value created 2 for our clients. The effects of the pandemic made 2020 an unusual year in the capital markets. During a time of economic turbulence, the program delivered a one-year return of 24.4 per cent, outperforming the program benchmark of 13.9 per cent. This represents over $4.2 billion of value created 2 . The resiliency of our diversified portfolio, which has been significantly developed over the past five years, was evident during the pandemic disruption. The first half of the year saw declining transaction activity, and operating performance and valuations suffered amid the uncertain economic outlook. However, as countries and companies adapted to the changing environment, supported by unprecedented monetary and fiscal stimulus, the second half of 2020 saw a broad and sharp economic recovery. Better than expected operating performance, robust public market valuations, and accelerated transaction activity drove higher valuations during the latter half of 2020. BCI worked diligently with our portfolio companies' management teams and investment partners to mitigate risks. 1 Assets in the private equity program are valued annually at December 31. Returns for the program are calculated on an internal rate of return basis and benchmarks are presented on a time-weighted rate of return basis. 2 Value creation refers to the dollars earned on private equity assets and is not relative to the benchmark. 2 0 2 0 - 2 0 2 1 C o r p o r a t e A n n u a l R e p o r t M a n a g e m e n t ' s D i s c u s s i o n a n d A n a l y s i s 4 0

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