Meet IMCO, the $60B fund in Ontario flying under radar
One of the biggest institutional investment managers in Canada is sharpening its sales pitch. The Investment Management Corp. of Ontario only became fully operational in July 2017, but when it came online, it did so as the ninth-largest institutional fund in Canada. The organization has more than $60 billion in assets under management courtesy of its first two clients, the Ontario Pension Board (OPB) and the Workplace Safety and Insurance Board (WSIB). Now, IMCO is getting ready to try to attract new members from the patchwork of funds that invest on behalf of the province’s public-sector entities. According to the head of the fund, there is “a huge potential client list” for IMCO to go after. “We believe we’ve got a very compelling value proposition,” said Bert Clark, president and chief executive of IMCO, in an interview. “What we’re building is something that none of them could replicate at the same cost.” Created by the provincial government (although it is an independent firm), the intent was for IMCO to try to pool funds and offer public-sector pension plans lower costs with economies of scale. It is similar to outfits in other provinces, such as the Alberta Investment Management Corp., although participation in IMCO is voluntary. “There are many, many public funds in Ontario,” Clark said. “Every university has its own pension fund. Crown agencies have their own pension funds. There are various pools of capital in the province itself, and all of those right now are being administered separately.” Under its model, IMCO offers advice and makes the day-to-day investing decisions for clients, but members retain responsibility for their liabilities (such as pension payments) and control over the asset allocation strategy. Since coming into the world under an act of provincial parliament in 2016, Clark said the fund has been busy working on its risk-management system and front-office operation. Come early 2019, IMCO will ratchet up its recruitment efforts. “We haven’t been out aggressively telling our story yet, because we wanted to have all the foundational capabilities in place,” said Clark, who was formerly the head of Ontario’s infrastructure agency, Infrastructure Ontario. “In January, we will go out and say, ‘This is who we are. This is what we can do for you. These are our costs. This is the value proposition. And this is the process for joining.’” IMCO’s name is starting to turn up in some interesting places as well. That includes the announcement last week that the fund was part of a consortium that purchased a 25-per-cent stake in a 413-megawatt portfolio of Canadian hydroelectric assets owned by Brookfield Renewable Partners LP. “It underscores our capability to provide our clients with access to high-quality investment opportunities and aligns with our strategy of creating strong partnerships with leading, global infrastructure firms,” said Jean Michel, IMCO’s chief investment officer, in a press release announcing the transaction. IMCO is also teaming up with commercial real estate company Cadillac Fairview to build an $800-million office tower in downtown Toronto, an investment the fund noted was “well-aligned” to the Ontario Pension Board’s return objectives. “The management fees for some of these asset classes are really high,” Clark said. “But again, if you pool the assets together, and we’re doing that as a $65-billion or bigger organization, we have a different bargaining power. We can establish strategic relationships with funds. And so the costs are a heck of a lot less.” IMCO is only a few years old as well, meaning it has no legacy IT systems to update, which Clark called a “huge, huge advantage.” The fund has the benefit of hindsight and history as well. “What were unique strategies 25 years ago have become much more commonplace,” Clark noted. IMCO has already reached a “critical mass” with its current mountain of assets, its CEO says, and the fund booked a total return for 2017 of 10.3 per cent. Existing clients are expecting their membership to pay further dividends. In its 2017 annual report, the Ontario Pension Board, which administers the Government of Ontario-sponsored Public Service Pension Plan, said that its 2018 operating expenses were “expected to decline due to the outsourcing of OPB investment operations to IMCO.” And with every additional client, Clark added, the costs of doing business are spread over an even-wider base. “I’d like to think that within five years, we’re at $100 billion,” in assets, Clark said. “But in order to hit $100 billion, we’d need to have pretty good growth of the existing assets we’re managing, and new members.” Clark has no illusions about the challenge ahead in getting those members to sign on. “These will be big decisions for our clients,” Clark said. “I think there’s a long sales cycle to this, but it begins in January.”