“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.
This article appeared originally on our companion site, BenefitsCanada.com