Saturday, August 15, 2015

Restraint not designed for les grand fromages

In Thursday's CFAX session, I talked with Ian Jessop about British Columbia's pension fund management agency. bcIMC has had attention here before and the graphs below represent information from the recently released 2015 Annual Report. I will have additional commentary later but these graphs demonstrate that it remains business as usual at bcIMC.

As mentioned in the audio, the Washington State Investment Board, which also manages over $100 billion, again outperformed bcIMC. However, they achieve results with a much less costly — and decidedly less pretentious — operation.








Since much is invested outside Canada, a significant part of the bcIMC return in fiscal year 2015 was from the decreased value of the Canadian dollar. For example, Bank of Canada reports these conversion rates for the U.S. dollar:

March 31, 2014 - 1.1053
March 31, 2015 - 1.2683

In the fiscal year ended March 2015, bcIMC hired a new CEO. The new guy instantly became British Columbia's highest paid public servant but Doug Pearce, the outgoing CEO, stayed on the payroll for five months, which was enough time for him to score $1.72 million.

Check out earlier articles about bcIMC.

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8 comments:

  1. BC's public employee pensions are jointly managed by the unions representing the workers there.

    Have you contacted the unions for comment?

    ReplyDelete
    Replies
    1. These are gov't appointees who direct the investments. The BC gov't employees sit on the boards of these investment groups but but the gov't appointees make the decisions.

      Delete
  2. The unions may be notifed, but they do not make any decisions.

    ReplyDelete
  3. Pension fund management is pyramidal. For example, the Municipal Pension Plan covers a large number of public servants, including health care workers. It provides about 1/3 of funds managed by bcIMC. The MPP has a board with 32 trustees, appointed by employee groups, public agency employers and the province. By themselves, MPP board members can only make decisions that are cost-neutral.

    It sends funds to bcIMC for investment and utilizes another bureaucracy, British Columbia Pension Corporation, to administer pension benefits. Of course, bcIMC and BCPC also have boardrooms full of Directors. However, the administration costs at MPP and BCPC are relatively modest, nothing like the individual rewards taken the managers and directors at bcIMC.

    The MPP and it is not overly generous since it places annual limits on the amounts of pensionable income that determine members’ ultimate benefits. The 24 carat gold plated public pensions are the supplementary ones for the provincial executive ranks. There are not an overly large number of beneficiaries but the rewards are mind boggling when compared to standard worker pensions.

    Money flows into bcIMC from a variety of public and quasi-public pension plans and each has its own governance structure, with its own cost impositions on investment funds. It's not exactly the underground economy but it is part of an almost invisible economy. It's common knowledge that the only workers who care much about pensions are folks who are thinking about retirement. Try asking a 35-year-old about the details of his/her pension and 90% will respond with a blank stare. That leaves pension decisions largely to self-interested trustees and managers who tend to favour the status quo as long as per diems are sufficiently generous.

    On occasion, social activists will ask hard questions about public pension fund management but the real power resides with the provincial government which has previously legislated unilateral changes and can force specific directions in contract bargaining.

    ReplyDelete
  4. Great job, Norm; as usual you make it clear enough to be understood even glimpsed on a passing T-shirt in a busy street.

    ReplyDelete
  5. I'm not sure who has more (or any) power to affect changes to the BCIMC — the current contributors or those (like me) who are drawing pensions — but I have passed on this blog topic to my former local president.

    I will also be passing this on to my BC Liberal MLA, John Martin.

    ReplyDelete
  6. My Dear John letter, to my BC Liberal (Chilliwack) MLA, John Martin:

    John,

    I have recently learned of outrageous wages and bonuses at the BC Investment Management Corporation, the group that invests my teacher's pension funds and funds of other public employees.

    It may surprise you that the two CEOs who shared the position last year shared almost $3,000,000 in compensation — while the Chief Investment Officer of Washington State's Investment Board made $509,118. Both groups are in charge of similar amounts of money.

    The US dollar exchange can't explain away such a huge difference, nor can the performance of the two pension investment services. Washington State's board out-earned BC's investors by better than 2% in 2014.

    As well, the top six highest-paid executives in WA totalled $2,732,936 in compensation in 2014. The top six in BCMIC bagged $8,300,946 during that time. Please don't use the "Pay top dollar to attract the best people" argument, as Washington State has paid a lot less and gotten better performance.

    Since 2010, the total salary costs at BCMIC have more than doubled, from about $25 million to over $50 million. How is that for restraint — while teachers and other government workers worked for almost five years with zero increase to their rate of pay? During the 2010-2015 period, teachers were forced to make about a 1% increase to their pension contributions... apparently to ensure that the plan could succeed — though we can see who succeeded more.

    I ask you to read Norm Farrell's reports at http://northerninsights.blogspot.ca/2015/08/restraint-not-designed-for-les-grand.html#comment-form and http://northerninsights.blogspot.ca/2014/03/not-puffball-comparison.html

    After that, I ask that you bring this issue up with your BC Liberal colleagues and see if some meaningful trimming can be done. Even a 10% correction could result in lower premiums for contributors — and better returns on investments, by actually investing the money, rather than pouring it into excessive wages and incentives.

    Yours sincerely,
    G. Barry Stewart

    ReplyDelete

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