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IMCO’s CIO: “A Movie We’d Already Screened For”

Jean Michel • 6 May 2020
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CIO Jean Michel Describes the Overall Goal: An Array of Portfolios that will React Well in Different Environments 

Setting Up IMCO

No one said it would be easy to set up a major new investment organization. The Investment Management Corporation of Ontario (IMCO) was created by the provincial government in July 2016 to consolidate small pension plans into larger funds. A year later, it began to manage funds on behalf of two clients: the Ontario Pension Board and the Workplace Safety and Insurance Board. The goal, CIO Jean Michel says, is to “create an institution where we could pool assets and where you could get better returns, economies of scale, and access to assets classes that are not easy to get if you’re a smaller fund.” IMCO has the potential to bring together some 90 eligible plans in the province, with total assets of about USD$64 billion. These include an assortment of local government agencies, colleges and universities, and municipalities.

In contrast to its neighbors in Toronto, OMERS (the Ontario Municipal Employees Retirement System) and the Ontario Teachers’ Pension Plan (OTPP), IMCO is not structured as a pension fund. Its clients continue to exist as plan sponsors and administer their own plans. IMCO’s job is to create a buffet of investments and then the planed sponsors “have the ability to select their own asset mix,” Michel says. This is essentially the same model as Caisse de Dépôt et Placement du Québec, AIMCo (Albert Investment Management) and BCi (British Columbia Investment Management Corporation), with the exception that IMCO must win its own clients, and operates on a cost recovery model.

Jean MichelMichel came to IMCO in June 2018 after stints at Caisse de Dépôt, and Air Canada’s pension funds, where he was president. “When I arrived,” he recalls, “the first thing I was asked to do was to develop an investment strategy, and a team structure to implement it.” During 2019, IMCO took a number of steps to blend the portfolios and administrations of the two clients. Michel also began building internal infrastructure and global credit teams. And he got rid of hedge fund funds-of-funds – Michel argues they just add a layer of fees – while introducing new client reporting systems and hiring a new custodian.

Just before COVID-19 struck, IMCO won its third client: The Provincial Judge’s Pension Plan, with $300 million in assets under management. Getting more of the 90 funds that are eligible for IMCO membership requires a bit of both marketing and negotiations. The choices for these funds are to remain independent, go with IMCO, or find their own outsourced CIO. Michel believes IMCO’s end-to-end solution – professional portfolio construction, access to investments, dedicated risk management, and client-service teams – enables a total portfolio approach that outsourced fund-of-fund models simply can’t offer.

A Specialized Approach to Partnerships

In 2020, IMCO plans to nail down the details of its legal structure and begin migrating the segregated assets of its clients into pools that reflect its investment strategies. Michel says he’s been particularly focused on two initiatives. 

One is to set up pools for a dozen or so asset classes. In addition to public markets, he also wants the asset mix to offer “30% to 40% in private markets, that includes private equity, real estate, and infrastructure.” The overall goal, he says, is to have an array that ensures “portfolios that will react well in different environments.”

The other initiative is for IMCO to internalize more investment functions and make more direct deals. By doing that, Michel says, “You significantly reduce costs compared to externally managed models, and also you create a level of intelligence or skill internally so that it’s much easier to manage money and much easier to deal with partners.” He hopes to end up with about 75% of assets managed in-house. IMCO currently has about a hundred outside managers, but as Michel’s team and its capabilities mature, that number will probably shrink to about 60 over the next four or five years. “We want to have fewer partners, but closer relationships,” he says. 

Despite the pandemic, IMCO has been actively reconfiguring its portfolios. In Michel’s view, “Market disruptions are “normal and you need to be prepared for them.” For Michel that meant not only “having enough liquidity,” but also knowing how “your portfolio should react” to a host of scenarios. A year ago,  IMCO undertook “a lot of stress tests to show what performance would look like under various conditions,” he says. These stress test results were shared with IMCO’s Board and clients, allowing Michel and his team to focus on seizing investment opportunities rather than soothing frayed nerves. “In effect, the pandemic’s impact was like a movie we’d already screened for our audience before.”

Armed with these lessons, in recent weeks, IMCO has responded to market developments by stocking up on credit. It has also beefed up exposure to real estate through investments in REITS and private markets, at pandemic prices.

The pandemic has resulted in a few delays. Some private market pieces, for example, “will not get done until 2021,” he says. But Michel says IMCO’s broad contours are in place, and they are ready for Ontario’s smaller public funds to sign up.

Jean Michel is a member of II Network, to discuss the content of this article and further engage with him, comment below.