OPTrust Delivers 9.5% in 2017

Mar 13 17:03 2018 Print This Article

Martha Porado of Benefits Canada reports, Equities boost OPTrust return to 9.5% in 2017:The OPSEU Pension Trust posted a 9.5 per cent return for 2017, an increase on its six per cent return in 2016 and its eight per cent return in 2015.“We were strong across all the asset classes,” says Hugh O’Reilly, president and chief executive officer of OPTrust, noting the fund saw a 22.9 per cent return in public equities and a 21.6 per cent return in private equities. Alternatives also performed strongly, he says, with real estate returning 14.7 per cent and infrastructure returning 11 per cent. The fund’s fixed-income investments gained a 4.6 per cent return. The one problematic area for the year was currencies, says O’Reilly. “We had a slight drag on our portfolio from foreign currency, U.S. dollar exposure.”O’Reilly notes that good investment returns are increasingly difficult to achieve in the current market environment. “We believe in taking risk efficiently and purposefully,” he says. “We think that overall returns going forward are going to be more and more difficult to achieve.”O’Reilly notes, however, that OPTrust “will not be taking more risk in order to gain greater returns.” One area of concern is climate change, he adds. “Climate risk is a significant risk to us as investors and we want to make sure that the entities that we invest in disclose their climate risks, so that will allow us to engage with them, so we better understand the risks being taken. We can make better investment decisions and as appropriate, we can get them to change direction.”But the pension fund isn’t divesting from certain sectors where climate change is concerned. “We believe in improving practices in the oil and gas industries,” says O’Reilly. “We’ve also done an accounting of what our exposure is in renewables and we’re better beginning to understand our real estate portfolio in terms of its green effects.”Another challenge OPTrust will continue to address is the likelihood of an ongoing increase in its members’ life expectancy, which will further add to the plan’s obligations. “We have to make sure that our assumptions reflect those improvements,” says O’Reilly says. The plan’s discount rate was lowered to 3.3 per cent in 2017, from 3.4 per cent in 2016, reflecting increased actuarial margins.All in all, the fund now holds new assets of $20 billion. Its funding status increased slightly, to 111 per cent compared to 110 per cent in 2016.OPTrust put out a press release, OPTrust Takes Measures to Reduce Risks for Members:OPTrust today released its 2017 Funded Status Report, which details the Plan’s ninth consecutive fully funded position and financial results. OPTrust achieved an investment return of 9.5% for the total fund, net of external management fees. The organization also received high scores, with members and retirees rating their service satisfaction as 9 out of 10. In addition, OPTrust is one of the first plans to report in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)."Last year, we started a conversation within our industry about what we believe matters most to our members,” said Hugh O'Reilly, President and CEO of OPTrust. “Our answer hasn’t changed: it’s the Plan’s funded status. That’s why this year, we are continuing the conversation.”“The funded status is the foundation on which secure, sustainable retirement futures rest, and for us, it is the measure that matters," O’Reilly added. “We are working in an environment where investment returns are increasingly difficult to achieve without taking excess risk, and we are dealing with the effects of the ongoing maturation of the Plan. These challenges require constant innovation on our part. We also share our ideas and successes with others, which is an important part of being good pension citizens.”The Plan remained fully funded in 2017 on a regulatory filing basis, while the organization continued to strengthen its actuarial assumptions to enhance long-term funding health. The Plan’s real discount rate was lowered to 3.30%, net of inflation, from 3.40% in 2016, reflecting increased actuarial margins and reducing the risk of future losses due to investment returns falling short of the expected cost of members’ future pensions.With an update of assumptions regarding member longevity, the Plan has addressed the likelihood that members’ life expectancy will continue to increase, thereby increasing the Plan’s pension obligations. The funding valuation confirmed deferred investment gains of $885 million at the end of 2017, which should further improve funded status in the years to come. OPTrust introduced its member-driven investing (MDI) strategy in 2015 with a singular focus to increase the likelihood of plan certainty by balancing the objectives of sustainability and security to better align the Plan’s outcomes with members' needs. Superior risk management has helped the Plan to improve its funded status, maintaining stability and helping to ensure the Plan can weather a severe market downturn, like the one experienced by the global economy in 2008. The Plan's net assets increased to over $20 billion at 2017 year-end, up from $19 billion as at December 31, 2016.More detailed information about OPTrust's 2017 strategy and results is available in its Funded Status Report at optrust.com.About OPTrustWith net assets of over $20 billion, OPTrust invests and manages one of Canada's largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with over 92,000 members and retirees. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario. Take the time to carefully read through OPTrust's 2017 Funded Status Report which is available here. This is their version of their Annual Report but the title reflects where their priorities lie.Below, I provide you with an image which goes over the main highlights of this report (click on image):

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About Article Author

Pension Pulse

Leo Kolivakis is an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. He has researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). He's also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system.

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