Pension system BCI accelerates pivot to direct investing

BCI, which is aiming to split its PE portfolio equally between direct deals and fund investments, last year increased directs' share to 38 percent.

British Columbia Investment Management Corp invested C$5.3 billion ($4 billion) in the private equity market last year, a record amount driven in part by a strategic push toward direct deals.

BCI deployed C$1.6 billion to direct investments and co-investments last year, according to its 2019-20 annual report. While this is a somewhat smaller outlay compared with a year earlier, the share of PE portfolio assets held by directs rose to 38 percent, from 32 percent.

The money went into eight transactions, several of them of high profile. BCI in 2019 invested alongside Ares Management and Leonard Green & Partners in Press Ganey, a US provider of patient-satisfaction surveys to hospitals. The group acquired the business from EQT for more than $4.2 billion, Buyouts’ sister title PE Hub reported.

Other 2019 investments include UK specialty insurance broker BMS, backed by BCI and Preservation Capital Partners. BCI also joined with ATL Partners to acquire US metal finishing company Valence Surface Technologies.

BCI began its move to intensive direct investing only recently. The goal is to split the PE portfolio on a roughly 50-50 basis between directs and funds, a background document states. Considerable progress was made over the past four years, when directs’ share was effectively doubled.

While BCI is aiming for more exposure to direct deals, it presently commits most capital to funds. Last year, C$3.7 billion was pledged to 18 new and core fund relationships, up 23 percent from 2018. Interests in 10 vehicles were also sold for C$800 million.

Fund relationships reflect a range of brand-name general partners, a 2019 inventory shows. They include Advent International, AEA Investors, Bain Capital, Brookfield Asset Management, Castlelake, CVC Capital Partners, Francisco Partners, Hellman & Friedman, PAI Partners and TPG.

BCI’s PE strategy emphasizes global buyout and growth equity opportunities, its website shows. It is also sector-focused, targeting consumer and retail, financial and business services, healthcare, industrials and technology. Top-tier funds are selected in part to help create access to large direct opportunities where BCI can assume stakes exceeding 25 percent.

Directs key to returns

The PE portfolio’s net assets stood at C$17.9 billion at the end of March, up 38 percent from the same time last year, according to the annual report. Private equity now accounts for 10.4 percent of total assets.

BCI attributes recent solid PE performance to direct activity’s greater weighting in the portfolio. The five-year annualized return was 17.1 percent at the end of December, ahead of a 12.4 percent benchmark. The one-year return was 16.2 percent against a benchmark of 16.9 percent.

Jim Pittman, BCI’s global head of private equity, leads the strategy. Pittman joined in 2016 from Public Sector Pension Investment Board, where he worked for more than a decade as a managing director, private equity. Appointed to his current role last year, he oversees a team of 47 professionals.

Founded in 1999, BCI was modeled after organizations like Caisse de dépôt et placement du Québec, aggregating for investment purposes the assets of multiple British Columbia pension funds and other pools. Its largest members include BC’s Municipal Pension Plan, Public Service Pension Plan and Teachers’ Pension Plan.

Based in Victoria, British Columbia, BCI is today Canada’s fourth largest pension system. It managed net assets of more than C$171 billion at the end of March.

BCI declined to provide a comment for this story.

Action item: See BCI’s 2019-2020 annual report here.