By Lauren Bailey
The Investment Management Corp. of Ontario saw a weighted average net return of 9.9% for all client portfolios (net of all costs) for 2024, though it fell short of its consolidated benchmark return (12.3%).
According to the pension fund’s latest annual report, the range of returns across IMCO’s client portfolios was 8.2% to 11.3%.
Public equities was the best-performing sector, returning 24.2% for the year, though it missed its one-year benchmark (27.0%). On a five-year basis, the fund returned 10.3%, coming close to its benchmark (11.3%). Global equities outperformed other asset
classes due to high returns from U.S.
equities, including the Magnificent 7 mega-cap
technology stocks.
The fund’s investment in CoreWeave, a graphics processing infrastructure supplier to artificial intelligence developers, helped offset the effect on the portfolio from the bankruptcy filing by Swedish electric
vehicle battery maker Northvolt. By the end of 2024, CoreWeave’s value tripled since IMCO’s initial investment. It also added a strategic partner with sophisticated
climate transition research capabilities, in addition to continuing to add niche managers
to supplement its internal research capabilities. The majority (60%) of its PE allocations are in the US, followed by Asia Pacific (16%), Europe (12%), Canada (9%) and other regions (3%).
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IMCO’s private equities portfolio returned 16.4%, outperforming both its benchmark for the year (17.9%) and its five-year benchmark (17.1% compared to 9.0%). In 2024, it completed its first-ever secondary market sale of
PE holdings, reducing exposure to fee-carrying funds not aligned with the portfolio’s long-term goals and freeing up capital for more strategic investments. The fund also made eight direct investments worth
a combined C$580M across a range of sectors and
geographies and allocated a total of US$300M to
two existing strategic partners specializing in North American
middle- and upper-middle-market deals. The bulk (78%) of IMCO’s PE assets are in the US, with Europe (18%), Canada (3%), and other regions making up the balance of investments.
Fixed income was flat for the year (0.0%) and reached negative territory (-1.8%) on a five-year basis, which it attributed to the general rise of short-term
interest rates and bond yields in the post-Covid recovery
period. It added more short- and mid-term bonds for liquidity, moving their respective allocations to 3% and 2%, respectively. As at year end, half (51%) of its FI allocations were in long-term bonds, while 44% were inflation-linked bonds.
Real estate also posted negative returns for the year (-0.8%) and on a five-year basis (3.1%), due to the portfolio being overweight in underperforming office and retail and underweight in
overperforming industrial and multi-residential. In 2024, the fund closed on a £17M co-investment with
Breakthrough in Trinity House, a lab-enabled development
near Oxford University, and numerous UK-based life sciences companies. It also committed US$75M to Dermody Properties
Fund IV to acquire, reposition and develop class A industrial
properties throughout the US. IMCO also completed the sale of a shopping center in Ottawa, Ontario, and fully lease its first greenfield net-zero greenhouse gas emissions building in Laval, Quebec. Office (31%) and residential (26%) make more than half of its RE allocations, followed by retail (17%), industrial (14%) and mixed-use/other (12%).
The fund’s infrastructure portfolio generated 8.0%, missing its benchmark (16.4%); however, it outperformed the five-year annualized benchmark (6.8% compared to 4.7%). In 2024, IMCO sold some of its highly valued assets and deployed capital to utilities and in the digital
space, including providing additional funding to NeXtWind, a
German wind power platform and leading a €2.1B recapitalization of fiber network provider euNetworks. As of Dec. 31, 2024, more than half of its infrastructure assets were in Europe (36%) and the US (28%), followed by Asia Pacific (15%), Canada (12%), and other regions (9%).
IMCO’s credit investments also posted a healthy increase (8.1%) for 2024, nearing its one-year benchmark (8.3%) and surpassing its five-year benchmark (4.2% vs 2.0%, respectively). With 1.7B in co-investments and $470M in funds, IMCO credited the portfolio’s performance to a
range of credit market segments, including the internalized
loan portfolio, public and private managers, direct middle
markets, special situations and infrastructure loans. The
internalized loan portfolio generated strong absolute and relative returns.
Additionally, the fund’s public market alternatives portfolio generated a return of 6.2%, out-performing its one-year benchmark (5.9%), though, on a five-year basis, it fell shy of its benchmark (2.9% vs 3.5%, respectively). The report noted the end of the “lower-for-longer” interest rate environment that
had prevailed until 2023 undercut the value
proposition behind many low-returning PMA instruments. IMCO discontinued this portfolio as of July 1, 2024.
