I am the CEO of the Municipal Finance Authority of BC (MFA), which is a non-profit-seeking organization unique to B.C., owned and governed by local governments. We aim to offer best-in-class and low-cost infrastructure borrowing and investment solutions to our members.
I wanted to provide some context to T. Philpot’s opinion piece from February 18 posted on the Burnaby NOW website regarding “low returns” on Burnaby‘s $2 billion portfolio and inform the public of some very good news.
In contrast to what was suggested in the letter, the City of Burnaby’s investment performance has been nothing short of exemplary. As a veteran institutional investor and investment banker with over 30 years of experience, I believe the city’s portfolio has been professionally managed in a low-risk fashion yet has delivered consistent and strong returns for well over 2 decades.
As T. Philpott has rightly pointed out, the Community Charter in B.C. is prescriptive and limits the direct investments that B.C.’s communities can invest into high-quality bonds and bank deposits. Now, to be clear, those types of provincially-mandated restrictions are wholly-appropriate for a big portion of a municipality’s reserves that are there to assist in funding unforeseen circumstances, such as budgetary pressures or emergency events.
In that context, without a clear idea of when funds are needed, a government investor needs to be more far more concerned about the safety and price volatility of the invested funds. I should note that within the confines of the allowable investments, Burnaby’s investment performance has been far from ‘measly’, but in fact among the very best I have ever seen.
Remember that interest rates have been falling for decades and reached a low point in early 2020, with Canada 5-year bonds yielding just 0.3%. Through that lens, Burnaby has had the foresight over the last 20 plus years to purchase long-dated bonds at much higher interest rates – resulting in the highest returns of any LG in BC, averaging about 4.5% per year over that last 20 years.
The City has not stopped there. Since I joined the MFA over 6 years ago, Burnaby has been the leading voice in lobbying both the MFA and the Provincial government about the importance of accessing new investment options to both enhance returns and increase diversification of local government portfolios.
So here is the good news: Burnaby’s significant efforts have paid off as the MFA now offers a multi-asset class fund as a new allowable investment for any suitable local government in B.C. The key, though, is to understand that unlike short-dated bonds or deposits that offer little return but stability, this new Diversified Multi Asset Class Fund (DMAC) will offer a higher expected returns (about 6% in the long run) but with more price volatility over short time periods than bonds.
As such, they are only suitable for municipalities that have long-term reserves not needed for 10 years or longer - and have the resolve to look past the volatility in order to reap the long-term benefits of a higher expected return.
Burnaby is now the lead and largest investor in the new fund which was launched in late January. I wanted to thank the City of Burnaby and its investment staff for being the leading voice and catalyst for this new offering that has the potential to offer tremendous benefits for LGs all across B.C. for decades to come.
Peter Urbanc, Victoria
