OMERS – Canada’s second-largest pension plan, according to Benefits Canada’s 2012 Top 100 Pension Funds Report—today announced its 2012 financial results, highlighted by $5.7 billion in asset growth.
The plan’s assets grew to $60.8 billion at the end of 2012, and the growth on the year continues a pattern that has seen the plan’s assets increase by more than $17 billion since the 2008 economic crisis.
“OMERS had a strong year in 2012. The $5.7-billion increase in our net assets demonstrates the strength and robustness of OMERS’ business model, with the capacity to generate growing investment cash yields and more than ample liquidity to withstand market shocks under stressed financial conditions,” said Michael Nobrega, OMERS’ president and CEO.
The plan saw a total investment return of 10%, led by a strong performance from its private market portfolio. Private market investments returned 13.8% overall, with 19.2% from OMERS Private Equity, 16.9% from Oxford Properties and 12.7% from Borealis Infrastructure. OMERS Strategic Investments, which represents less than 2.5% of the portfolio and holds assets in Alberta’s oil and gas sector, returned -10.1%, due to falling oil and gas prices throughout 2012.
OMERS Capital Markets, which manages the plan’s public market portfolio—including public equities, fixed income and debt investments—also posted a strong performance, with a 7.5% return.
The plan’s total return on its investments was 3.17% in 2011 and 12.01% in 2010.
Funding challenges continue
Despite the strong performance in 2012, OMERS continues to face a funding deficit. At the end of 2011, that deficit stood at $7.3 billion, up from $4.5 billion the year before. The gap continued to grow in 2012, as total pension entitlements exceeded the plan’s net assets by $10 million.
“This deficit is based on a long-term projection going out several decades and in no way reflects our ability to pay pensions in the short term,” said Patrick Crowley, OMERS chief financial officer. “Solid investment returns, which have averaged 8.9% per year in the four years since the financial crisis and 8.24% over the past 10 years, combined with contribution increases, are already having a positive impact on reducing the deficit. Sustained returns at this level could bring the plan back to fully funded status earlier than anticipated,” said Crowley.
A 2010 plan aimed at eliminating the deficit over time included a contribution increase to be phased in over three years and assumes a 6.5% net investment return on an annual basis.
“As a pension plan, we are focused on our ability to pay pensions to our members over the long term in spite of factors such as the increasing average age of members, low interest rates and volatility in the public equity markets. Our strategy is continuing to evolve to provide us with a fortress-like balance sheet that enables the growth of our assets while maintaining the necessary liquidity to withstand market disruptions,” said Nobrega.
Nobrega pointed to OMERS’ ongoing asset mix shift as a key part of that strategy. The plan ended 2012 with 60% of assets in public markets and 40% in private markets, compared with 82% public and 18% private before OMERS’ current investment strategy was implemented in 2003. Nobrega said the plan’s long-term aim is to achieve a mix of approximately 53% public and 47% private market investments.
He also noted that the plan is working on cutting its investment costs through direct ownership and active management of assets. At the end of 2012, 88% of OMERS’ portfolio was managed in-house, compared with 74% five years ago.
This article appeared on BenefitsCanada.com.