Alumni Spotlight: Timothy Keeling (MBA'15)
Updated: Dec 15, 2020
On this week's #SpotlightSaturday, we spoke with Tim, who is currently a Senior Principal at the British Columbia Investment Management Corporation (BCI) one of Canada’s largest pension funds with $150B of assets under management. Read more about his insight on infrastructure investing and pension funds from a truly international perspective.
Tell us a little bit about yourself, your background, and role at BCI.
I was born in the U.K., grew up in Spain, worked in London, Madrid, Chile for a while, Kingston for a year, and now BC for 5 years, so my accent is a convoluted mess.
I graduated at a very unique time after interning in leveraged finance – I came out of university around 2008, mid-financial crisis. At that time, I spent most of my undergrad preparing to work in leveraged finance, to find that the market had disappeared overnight. After working with HSBC for a very short period of time, I moved to Spain and began working at a credit hedge fund, essentially buying all the leveraged loans that had gone bad during the financial crisis. By a turn of fate, you’re issuing a whole bunch of loans, the whole market collapsed, and there’s an opportunity on the buy side to cherry pick the better assets in the space and construct a portfolio. I spent about five years with that credit hedge fund, which was affiliated with Spanish banks called Caja Madrid, partially owned by Cohen & Co. in the U.S. We were doing physical leveraged loans, TLAs, TLBs, Mezz, shorts synthetic credits, so your CDS market for the most part.
I did that for around five years; credit got pretty stale as volatility from that market disappeared, returns changed a lot, a lot of sovereign wealth funds and pension funds went into the private debt space to compensate for the lack of liquidity the banks had left. At that time, I was transitioning from the Spanish hedge fund to another institution in London, I had a garden leave period of around 6 months where I chose to build some expertise in something that wasn’t so niche, so I opted to go do an MBA. It’s hard to find MBAs that’s one year long that you can do in 6-9 months, but Canada has a lot of those options. I ended up finding the Queen’s MBA, which was the more interesting one I applied for. Fortunately, they took me. I arrived in Canada, spent some time talking to the large Canadian institutional investors who of course have an exceptional reputation globally, pioneering a lot of the private asset classes like PE, Infrastructure, etc. I thought I would go to B.C. for a couple of years and spend some time on the west coast, then go back to London with some institutional-grade experience under my belt. But I decided to stay, and have been here for five years, essentially doing private equity transactions in infrastructure assets.
So if you think about private markets generally, infrastructure and private equity can be considered relatively similar – you’re essentially buying “private equity” in both. But infrastructure as an asset class is different. It’s helpful to think about it this way: if you’re trying to buy a house, PE is buying a house you redo and resell to someone, infrastructure is buying the best house that’s always going to be rented, and doesn’t need a lot of maintenance.
Why did you choose to go to Victoria over going to one of the pension funds in Ontario? What are the major differentiating factors between our large Canadian Pension Funds?
I think people overlook the differences between the different asset managers. If you look at some of the ones in Ontario, they already had very large programs by the time I was leaving Queen’s. They have around $20 billion in infrastructure, a team that was 40-50 at the time. BCI in contrast had about $10B in infrastructure, with a large amount to increase allocation to the space, and a team of around 8 people. There was more opportunity from my perspective to grow the business here at BCI than going to some of the larger institutional investors.
If you’re interested in working in the pension space, you also have to understand the dynamics around the funding situation of the pension fund in general. Looking at a lot of the Ontario-based pension funds, they’re nearing a point where their net contributions – the amount the pensioners provide – are less than the amount they’re taking out to meet their pension obligations. They’re essentially selling their assets to fund their obligations rather than investing new money at this point. Sure, they can continue to recycle capital, but it changes the dynamic of the business, especially in an illiquid asset class like infrastructure in which you’re holding something that takes 6 months to a year to sell, you’re not going to deploy capital when you have liquidity needs to meet obligations.
BCI is in a different situation, where our contributions from pensioners are higher than being redeemed, so the fund is growing organically via those contributions and the investment returns that go in. BCI, from a growth trajectory, for every dollar we get, we are probably about $0.25 contribution, and $0.75 investment return. We’re not going to have to pay out more than that being contributed to the fund for about two decades. We’ll still be getting new investments and continuing to grow, so when you go into your career you want to join in a growth era and not in a declining era.
Your professional profile has renewables experience through your board experience and employment experience. Do you have a view on sustainable investing, ESG factors, the rise of the impact investing space?
It’s a great question – from a technical perspective, when talking about renewable resources, we’re not actually talking about renewable power but rather agriculture i.e. farmland, timberland, etc, essentially generation of food and timber for the most part. Renewable power would be a part of infrastructure, specifically power generation, which is the same as any form of generation from our perspective. In terms of ESG investing, there is great concern on whether organizations are focused on ESG and sustainable investing, whether you want to invest in something just because it is “green”, it really depends on what your mandate from your clients are; if your clients feel strongly that it’s the right thing to do, then as the fiduciary to their money, you can of course do that. If your goal is to fund pension requirements, you have to balance those things together.
For instance if you look at renewable power, we’re certainly interested in the space. There’s a Colombian hydroelectric generation company we’re looking at, certainly fulfills the ESG mandate; renewable, environmentally-friendly in the sense that it’s an alternative to coal, gas, etc. Here we’re recycling water. We’re not making that investment just because it’s environmentally friendly, but because large scale hydro also has the lowest cost of generation within the energy stack in Colombia, thus providing base load, which is far less risky than providing peak generation. You can say the same for a lot of renewable resources, though it depends on the level of subsidization. Costs have come down and it makes it attractive, but there’s a lot of hassle in chasing those spaces. We certainly look at it, but it is definitely challenging going into renewable power because of the rate of return relative to the risk, which is primarily regulatory, and looking across the globe, there’s a lot of tariffs regimes that impact of return, so you’ve got to weigh all these things together.
Broadly though if you think about ESG and infrastructure, it’s been table stakes for a long time. Let’s take utilities as an example. Someone is providing power to your house so your lights work – it’s a dangerous business and safety of employees has always been discussed in the industry for well over a decade. In our space, reputation precedes you. If we have an asset we wanted to buy for a while but have a track record of poor employee safety and poor environmental performance in our existing investments, regulators aren’t going to look at you and think of you as someone authorized to own that asset.
What was your QUAAF experience like?
What I enjoyed most about QUAAF was looking at new investment opportunities, and speaking to a lot of the fund managers. They all had different perspectives, views, processes, and it was about trying to understand how they worked and see how their processes were repeatable to enjoy successful long-term and short-term results. Infrastructure is very idiosyncratic in nature, it’s very regional, it depends on what’s going on in different jurisdictions. Attitudes are different, regulation is different, procurement is different, market structure is different. I had the curiosity to sit down and try to understand the way people do things and that’s probably what transcended the most.
If you think about QUAAF and what I do today, it’s all team based. Everything we did was in teams. To be able to execute investments and manage these businesses after investing in them. Learning how to do that in an educational setting was always going to be helpful when transfered into the professional world.
Generally speaking, if you’re interested in investments you want to gain exposure to investing as early as you can. If that means your own money, or fictitiously on a paper portfolio, that’s going to be helpful for you to build an investment mindset. The fact that we could do so with money is exciting, right? So if you are interested in the space, it’d be a no-brainer to be interested in joining something like QUAAF.
Generally speaking, if you’re interested in investments you want to gain exposure to investing as early as you can.
Over the course of your career, what is the biggest lesson you have learned so far?
In investment, you have to be very humble – things change a lot. We’re going through a period when assets have been appreciating non stop for about 5 years, so you can lose perspective on what happened in the past, what shaped the world today and so on. Bull markets can’t last forever. What you learn is to be very diligent at the end of the day.
What are your views on the low interest rate environment we are going through currently? What do you see as the impact on fundraising, on your investments, and dealflow?
For us, we differentiate between two things – the deployment of new capital and the management of the capital that we have. In terms of the capital that we have, there are great opportunities to refinance businesses at low rates of return. One of the German gas transmission companies I work with issued bonds sub 1% on a 15 year tenor – a very competitive financing source, a lot better than what we thought we could do a decade ago – and there’s the kind of opportunities we can get with the low rates. The fact that we can fund investments at a low cost of debt is attractive if you are in the equity.
How we grow in infrastructure is a little different, you’re not interacting in a competitive market, instead you are providing an essential service to a pre-existing end user. Typically, infrastructure companies grow via the incremental return on new capital invested, when rates decline an investor make stop investing in the asset base. That being said, value is less about financial engineering in the long term, at the end of the day it is about good management team relative to everything else, and that’s kind of the case in PE too; having the right people working is what’s going to drive to success rather than what the environment is at any given point in time because it’s constantly evolving.
In terms of finding new deals, which is the other aspect of our business, low rate of return means more competition for assets. A lot of people in infrastructure have said the space is more expensive, but what they overlook is that virtually every asset class is more expensive. Now you’re in a world where you have the option of buying fixed income at quasi 0% return on a global basis, or invest in infrastructure at a lower rate than 10 years ago but still an attractive choice from a spread perspective.
We see that historically infrastructure traded at 500 basis points above 10-year treasury (depending on risk, etc, you’d have to adjust that down). In a zero rate environment that spread has widened, but the average return of the asset classes is overall lower. A lot of people throw around the word TINA (there is no alternative) – you have to get out of fixed income and into something, it makes sense. A lot of people get into private markets, which makes it more challenging buying infrastructure. Is it still attractive? I think so. If you look at alpha for most infrastructure benchmarks, it has stayed relatively positive. As an asset class it continues to be relatively attractive compared to essentially generating no rate of return.
Do you see yourself doing this for a while?
If you think about what I do, you’re investing for a very long period of time. You’re holding it for 20, 30, 40, 50 years and these are businesses you have to manage. In private market investing, you do due diligence for six months, there are very high transaction costs, and then those assets are going to get held for the long term. For infrastructure you’re holding it to generate yield to meet pension obligations. Generally the expectation is you’re going to stick around for a long time – if I’m making investments today but planning on leaving tomorrow, that creates a bit of a conflict of interest. So, in terms of managing people, we’re trying to find people that want to build a career in this space; to not just buy assets but also manage those assets. Sitting on Boards, working with management teams, and doing that for very long periods of time. I’ve been working with the same management teams now for 5 years and hopefully down the line I’ll still be there, and management will still be there, and it’ll still be a very successful investment.
You have a lot of international experience – how does that change your perspective / impact you here in Canada?
Culturally, infrastructure is the same for me. In North America, there’s a different way in how people interact with each other as in it feels less relationship based and it’s more direct. Was it hard to adapt to? No, but you get to see how different people work. Finance is a global business; the reality is if you get into finance, if you focus on only your own market, it’s unlikely you’ll be successful given it’s a cyclical business. It’s all about diversifying and moving around the world and thinking about it that way. The challenge for me and those who are looking to start a career in this space, is that most of the population and growth isn’t coming from the developed world anymore, it’s coming from the emerging markets; how people think about political risk and think about countries specific risks as they migrate to those areas, is probably going to be the frontier of challenge. Finance is done the same, pretty much everywhere in the world.
What advice do you have for current students on how to make the most of their experience?
Remember that working is about dealing with people – by talking to the people in the industry you’ll learn a lot more than in any classroom. Reach out to the people in your industry, and it’ll probably be helpful in the long run to build up a relationship with the people that are doing what you want to do rather than being the best in your class. That extends to your peers, because everyone is going to go on to do great things and you’ll be able to work together and help each other out along the way. It’s not about excelling in class, it’s about doing everything else. The most important thing to remember is that most people who get into this industry primarily did so because they’ve done co-ops, or built a relationship with someone in the industry or networking. I’ve never heard of a case where someone says “I have the best grades in the class” and ends up in a really successful job.
Remember that working is about dealing with people – by talking to the people in the industry you’ll learn a lot more than in any classroom. Reach out to the people in your industry, and it’ll probably be helpful in the long run to build up a relationship with the people that are doing what you want to do rather than being the best in your class.
What’s one book, movie, tv show, etc, that you find yourself going back to to unwind?
My favourite book is a book called Meditations. The emperor of Rome, Marcus Aurelius, wrote a series of books which were compiled into what’s known today as “Meditations”. I’d highly recommend people read it! I also read the FT every day.