Canada's pool of major pension fund investors is getting a little deeper with the launch of an organization that will gather up fund assets in Ontario.
Toronto-based Investment Management Corporation of Ontario (IMCO) begins managing the $60-billion on behalf of its first two clients, Workplace Safety and Insurance Board (WSIB) and the Ontario Pension Board (OPB), on Monday after a lengthy integration process. IMCO hopes to add other small public-sector plans over time by offering them access to a broader range of asset classes at lower fees.
"Today we start managing those two funds. Now, we start to build an asset manager that can bring on more clients in Ontario," said Bert Clark, chief executive officer of IMCO. Mr. Clark, who was formerly head of Infrastructure Ontario, has spent the last six months tying up the two separate organizations, from IT and accounting systems to forming a broader governance model.
IMCO has roots in a 2012 report on what might be gained by pooling Ontario's fragmented public-sector pension funds. It was penned by Bill Morneau, who was then president of Morneau Shepell and a pension investment adviser to Ontario's Minister of Finance. His review suggested that size does matter in investing, that grouping these funds together would be a more efficient investment method and that plans might collectively save more than $75-million each year.
IMCO was established one year ago to be that consolidator, and WSIB and OPB signed on to be founding members. Other public sector funds of Crown corporations, as well as groups such as universities or municipalities, are permitted to become members. If IMCO were to gather up all possible clients in the province, it would nearly double its assets under management.
The next step for IMCO is an 18-month process that will prepare it to court new clients. First, IMCO wants to be able to provide the pension plans with portfolio construction advice on how to get the right asset mix. It also wants to give them better access to public markets and private investments through strategies such as direct investment deals and lower fees. And IMCO plans to build up a robust risk mitigation system, with a team that can oversee macro-economic events, and the impact of things like the oil downturn or debt problems in countries such as China across the portfolio.
"For every one of the asset classes, we need to build a platform that provides our clients with better access than they can get today. And that's a big job," Mr. Clark said. When the initial build out of IMCO's investment teams is completed more than a year from now, he will need to be able to make a compelling argument to potential future clients that the improved returns and lower costs will lead to better results than what they would be able to source on their own. Otherwise, there's no incentive for a prospective client to join the voluntary IMCO group.
But the model already has a strong track record in Western Canada. Alberta Investment Management Corp., known as AIMCo, manages more than $90-billion of assets for 26 pension, endowment and government funds in its province. British Columbia Investment Management Corp., or BCIMC, is even larger, managing $135-billion for more than 30 institutional clients.
Like its Western cousins, IMCO will also look to manage more of its money in house, rather than buying investments in asset through other fund managers.
"If you look at the fees that you pay to access some of these asset classes through external managers, they are really high," Mr. Clark said. "There's often a really strong case to say, 'we could do that ourselves,' and the savings would go to the pensioners." He added that being closely tied to the investments also helps with risk management.
IMCO is getting its start as speculation builds that public equity markets may be nearing the end of a long bull run, and private asset classes such as real estate, infrastructure and private equity are commanding high valuations."I think the challenging thing for investors right now is that people would say everything is expensive," Mr. Clark said. "Having had 10 years of monetary easing, things are expensive. You have to move cautiously and have a long-term perspective. And not overreach."