British Columbia Investment Management Corp’s private equity strategy earned a robust return last year, thanks in part to a recent shift toward direct investing.
BCI, which has net assets of nearly C$200 billion ($159 billion), generated a one-year return of 24.4 percent on its PE investments at the end of December, according to a fiscal 2021 report issued this week. This compares with a benchmark of 13.9 percent.
PE investments also performed over five years, returning 17.4 percent against a benchmark of 11.4 percent. This longer-term measure of the portfolio’s track record is perhaps most revealing as it corresponds with the period in which BCI was changing its approach to the asset class.
BCI began restructuring its PE strategy in 2016 to channel a greater share of capital and resources to direct investments, the report said. Executive vice president and global PE head Jim Pittman, hired the same year from PSP Investments, oversaw the effort.
The goal, Buyouts reported last year, is to eventually split the portfolio on a roughly 50-50 basis between directs and funds. On the direct side, BCI makes long-term minority and control investments in private businesses, on its own or with fund and other partners, across a range of geographies and sectors.
Directs and funds
BCI edged closer to the 50-50 ratio last year, with direct investments accounting for about 37 percent of portfolio assets, up from less than 20 percent five years ago. This was helped along by the deployment of C$900 million to six new deals.
Direct activity in 2020 included BCI’s participation in Searchlight Capital Partners’ $1.35 billion takeover of Frontier Communications’ Pacific-Northwest assets, creating Ziply Fiber. The deal’s other backers were WaveDivision Capital, CPP Investments and PSP.
In addition, BCI invested alongside Cinven to acquire Europe’s Compre, a consolidator of closed books of non-life insurance policies. It also joined Neuberger Berman, StepStone and Skandia to buy a minority stake in Waterlogic, a maker of purified drinking water dispensers.
BCI also sold a piece of a direct holding to “a like-minded investor,” realizing cash proceeds of about C$500 million, the report said. The company was not identified.
Even more money was put to work last year in fund investments, with C$1.7 billion committed to 13 vehicles. Fund partners are key to the strategy, the report said, as they are a source of diversification as well as co-investment and other direct opportunities.
BCI’s fund relationships include several top PE brands, a 2020 inventory shows. Among them are Advent International, AEA Investors, Bain Capital, Brookfield Asset Management, Castlelake, CVC, Francisco Partners, Hellman & Friedman, PAI Partners and TPG.
Next stop: New York
Performance helped expand BCI’s PE portfolio assets, which totaled C$20.7 billion in fiscal 2021, up 16 percent from a year earlier. Private equity now accounts for 10.4 percent of all net assets.
Returns were supported by a resilient portfolio in 2020’s virus-roiled market, the report said. This also owes to the restructuring effort, which diversified assets, including by sector. The strategy targets opportunities in business services, consumer, financial services, healthcare, industrials, tech and telecommunications.
Before joining BCI, Pittman was with PSP for almost 11 years as managing director, private equity. Appointed to his current role in 2019, he today leads a team of more than 40 professionals.
BCI, which has its headquarters in Victoria, BC, plans to next year open its first PE office outside of Canada. A team will be set up in New York City, it announced in July, to widen the scope of direct and fund investing.
Founded in 1999, BCI was modeled after organizations like Caisse de dépôt et placement du Québec, combining for investment the assets of BC pension funds and other pools. Its largest members are BC’s Municipal Pension Plan, Public Service Pension Plan and Teachers’ Pension Plan.