British Columbia pension fund expands private credit investments

Fund sees opportunities in credit markets, attractive prospects in fixed income

British Columbia pension fund expands private credit investments

British Columbia Investment Management Corp., responsible for managing the retirement savings of public sector workers in British Columbia, made a move into private credit investments, deploying nearly $5 billion in the past fiscal year.  

“Looking at banks and their capital constraints, the syndicated market is very, very tight, so it leaves a lot of room for investors like us to be lending out,” Ramy Rayes, executive vice-president of investment strategy and risk, told Bloomberg.  

“And yields are just absolutely brilliant right now in the private credit space.” 

The Victoria-based fund allocated $4.7 billion to private debt, marking its largest investment in this asset class since its inception five years ago. BCI reported a 4.6% gain in this asset class during the period, as stated in its recent earnings statement. 

According to Rayes, the current credit markets present attractive opportunities, particularly in fixed income.  

“Even on the corporate bond side, traditional corporate bonds, whether investment grade or high yield, there’s good opportunities. On the real estate debt side, we’re seeing a bit of the same,” Rayes said. 

For the year ended on March 31, BCI achieved a return of 3.5%, surpassing its internal benchmark of 0.3%. The fund's net assets also increased, reaching $215 billion. 

BCI's returns outperformed the Canada Pension Plan Investment Board, which recorded a 1.3% return during the same period due to declines in equity and fixed income markets, partially offset by the impact of a weaker Canadian dollar. However, BCI's results fell short of the returns generated by the Public Sector Pension Investment Board, which achieved a 4.4% return for its latest fiscal year, fueled by strong performances in credit and infrastructure investments, as reported by Bloomberg.  

CEO Deborah Orida emphasized the attractiveness of private credit markets amidst the economic slowdown and persistent inflation, as banks become more cautious in their lending activities. 

BCI attributed its positive results to a "very defensive" selection of assets.  

“We started positioning our portfolio a few years back for a storm, not knowing exactly what the storm was going to be,” Rayes said.  

“We raised liquidity at the end of 2021, we have quite a bit of alternative exposure, private markets.” 

Private equity, infrastructure, and renewable resources were significant contributors to the fund's gains, as highlighted in BCI's statement. The pension fund held $28.3 billion in private equity assets, marking a 4.7% increase from the previous fiscal year. Additionally, infrastructure and renewable resource investments grew by 9.2%, reaching $22.3 billion. 

During the fiscal year, BCI strategically divested from some key assets in private equity, capitalizing on favorable valuations. The fund completed sales amounting to approximately $5 billion. 

BCI has noticed signs of stress in the market, with some of its usual institutional partners having already surpassed their targeted investment levels in larger deals. 

“In private market particularly it’s not easy to sell and if you want to rebalance, you got to sell at a price that you may not be comfortable with,” Rayes said.  

“We’re actually seeking opportunities, but right now there’s not a lot of partners at the table trying to make transactions and we don’t typically transact on our own.”