Wednesday, May 1, 2013

The CAAT and OPTrust Edge?

The Canada Newswire reports, Fully-funded OPTrust achieves 10.1% investment return in 2012:
The OPSEU Pension Trust (OPTrust) today reported gross investment results of 10.1% for 2012, surpassing both its funding target return of 6.5% and its composite benchmark. Since its inception in 1995, the Plan has achieved an average annual rate of return of 8.6%. These solid results have helped OPTrust maintain its position as a fully-funded pension plan.

The Plan's net assets increased to $14.7 billion at year-end ($13.7 billion as at December 31, 2011) after paying over $745 million in pension benefits in 2012.

"The ongoing commitment to the Plan by its sponsors, Board of Trustees, employees and membership was key to the success of our program in 2012," said Bill Hatanaka, President and CEO of OPTrust. "Our investment results and fully-funded status demonstrate that, with strong sponsorship and prudent management, defined benefit is a highly effective model that can help people achieve economic security in retirement."

Investment results by portfolio

OPTrust's long-term diversification strategy, along with strong double-digit returns in its real estate, infrastructure and private equity portfolios were major contributors to its results.

The infrastructure portfolio led performance in 2012, with a return of 23.7%. The Plan's other alternative asset classes, private equity and real estate, had similarly good results, returning 20.5% and 17.9% respectively. The Plan also benefitted from the sharp recovery of global equity markets in the second half of the year, with its global equities portfolio posting a 17.8% return. Canadian equities generated a return of 9.1%.

Positive returns of 3.4% and 3.0% were generated from the fixed income and real return bond portfolios, respectively. The energy commodities portfolio posted a loss of -3.8%.

Funding position

The Plan's 2012 funding valuation shows that the Plan remained fully-funded as of December 31, 2012 with a surplus of $34 million after accounting for the Plan's $852 million rate stabilization reserves.

The valuation also identified $528 million in deferred investment gains, compared to $189 million at the end of 2011. These gains will be recognized between 2013 and 2016, further improving the Plan's funded status.

More detailed information about OPTrust's 2012 investment results, funding position and other activities will be available in its annual report, to be released later this spring.

About OPTrust

With assets of $14.7 billion, the OPSEU Pension Trust (OPTrust) invests and manages one of Canada's largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with almost 84,000 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.
You can read more about the OPSEU Pension Trust (OPTrust) and track their releases on their website. The annual report will be available later this spring but the results and funded status are good news for their members.

Another Ontario pension plan that recently reported its results is the Colleges of Applied Arts and Technology (CAAT) Pension Plan. Below, a press release from its website, CAAT Pension Plan earns 11.8% return, doubles reserves to $347 million, stands 103% funded:
The Colleges of Applied Arts and Technology (CAAT) Pension Plan today announced an 11.8% rate of return for the year ended December 31, 2012, which increased the Plan’s net assets to $6.3 billion from $5.6 billion the previous year.

In its most recently filed valuation, the CAAT Pension Plan is 103% funded on a going-concern basis with a funding surplus of $347 million. The valuation is as at January 1, 2013, and has been filed with the Financial Services Commission of Ontario.

The 11.8% rate of return is gross of investment fees and expenses totaling 50 basis points. Since the economic crisis of 2008, the CAAT Pension Plan’s well-diversified investment portfolio has earned an average annual rate of return of 11.1% before expenses and 10.5% net of expenses.

Contributions to the CAAT Plan, shared equally by employees and employers of the Ontario college system, were $332 million in 2012, while income from investments was $624 million. The Plan paid $332 million in pension benefits for the year.

The CAAT Pension Plan has 21,400 members employed in the Ontario college system, which is made up of 24 colleges and five affiliated non-college employers, and 12,600 retired members with an average annual lifetime pension of $22,700. In 2012, members on average retired at age 62 after 24 years of pensionable service. The 630 members who retired last year collected an average annual lifetime pension of $36,800.

Created at the same time as the Ontario college system in 1967, the CAAT Plan assumed its current jointly sponsored governance structure in 1995. CAAT is a contributory defined benefit pension plan with equal cost sharing. Decisions about benefits, contributions and investment risk are shared equally by members and employers. The Plan is sponsored by Colleges Ontario, OCASA (Ontario College Administrative Staff Association) and OPSEU (Ontario Public Service Employees Union).

The CAAT Plan seeks to be the pension plan of choice for single-employer Ontario university pension plans interested in joining a multi-employer, jointly sponsored plan in the sector. The postsecondary education alignment and similar demographic profile of university and college employees makes the university plans an ideal fit with the CAAT Plan’s existing asset and liability funding structures. CAAT has been in exploratory discussions with individual universities, employer and faculty associations, and with government officials, about the feasibility of building a postsecondary sector pension plan that leverages CAAT’s infrastructure and experience, reducing costs and risks for all stakeholders.

“The proposal we’ve been discussing offers an immediate solution for those universities with pension funding problems or who want to better manage their risk. It builds a postsecondary education pension plan without recreating an administrative infrastructure and its associated costs and risks,” says Derek Dobson, CEO of the CAAT Pension Plan. “Our idea is a ready-made, long-term solution that limits contribution rate volatility and risks for universities and for colleges.”

The 2012 CAAT Pension Plan Annual Report will be available on the Plan website later this spring.

April 2, 2013: CAAT Plan announces ongoing surplus

Delivering retirement income security

The CAAT Pension Plan has filed the January 1, 2013 actuarial valuation with the regulators. The valuation shows that the Plan has a going-concern surplus of $347 million, up from $154 million at the last valuation (January 1, 2012). This means the Plan is 103% funded on a going-concern basis.

The valuation means ongoing stability for members. Read more
Unfortunately, I can't provide details as to where CAAT made money in 2012 because their annual report will be made available later this spring.

What I can tell you is the folks at CAAT are doing an outstanding job managing assets and liabilities, which is why just like HOOPP, they too are fully funded. I can also tell you that CAAT's CIO, Julie Cays, has a stellar reputation and she has spearheaded many important changes to the way CAAT invests across public and private markets.

Neil Faba of Benefits Canada wrote a comment on her a couple of years ago, Julie Cays: Legacy:
To outsiders, cross-country skiing may seem like a calm, low-stress activity. But many trails have unexpected challenges for even experienced skiers.

“There are trails with some short but terrifying hills. There are some where you can’t see some of the hill from the top,” says Julie Cays, chief investment officer of the Colleges of Applied Arts and Technology (CAAT) Pension Plan. “And you don’t have edges [as in downhill skiing], so you’re not carving your way down the hill. You just get on the tracks and go. It’s exhilarating.”

While Cays enjoys the sport today, it wasn’t so long ago that the thought of it made her freeze with panic. She was over 40 when she resolved to conquer her fears of heights and speed in order to spend more time with her family, all avid cross-country skiers. She met that goal through years of dedication and small steps: first going out with an instructor and then spending each weekend conquering the trails at her own pace. “I now seek out hills that are called things like Terminator and Eliminator and Vertigo,” she says proudly.

Having the confidence to ski up a hill is as important as being able to ski down it, Cays explains—even when you can’t see what’s on the other side. In many ways, this is an apt metaphor for pension investing.

The CAAT Pension Plan, a $5.5-billion DB plan whose members include employees at Ontario’s 24 colleges of applied arts and technology, has undergone some major changes over the past few years to ensure that it’s equipped to face the instability of investment markets. Chief among these changes—and what Cays views as her proudest career achievement—has been altering the way the fund’s investment committee looks at governance and risk.

“It’s not about focusing on what our investment managers are doing relative to the TSX, what bets they’re making. It’s how much we should have in equities, in infrastructure, in real return bonds.”

Cays says she’s drawn on her ability to take complicated but important pieces of information and present them clearly to help the fund’s investment committee, comprised mostly of college representatives without a formal investing background, understand where the risks are in the fund versus its liabilities. This, in turn, has helped the committee create policy designed to keep the plan on sound footing over the long term.

Despite her extensive track record of success over more than 20 years in pensions and investments—Cays worked with CIBC and the Healthcare of Ontario Pension Plan prior to joining CAAT in 2006—it wasn’t her first career choice.

“My dad was a chorister in the U.K. at Durham Cathedral [an icon of Romanesque architecture built in 1093]. Music was everywhere in our house. We sang in the church choir; I played the piano and French horn.”

When it was time to decide on post-secondary education, Cays considered studying math at the University of Waterloo in Ontario, hoping to combine the computer science elements of the program with her love of music.
“It turned out that I wasn’t all that good at the computer science part of the math program, so that changed,” says Cays, who instead earned a BA in economics and eventually became a CFA.

One of the most important lessons Cays has learned is that life throws a lot of curves, both personally and professionally. Her ability to adapt and change course has served her well over the years. “I’ve never been terribly good at plotting out either my career or my personal life, but I think I’ve made good choices.”
Indeed, life throws a lot of curves and some endure a lot more than others. You have to learn to adapt as best as possible and learn the value of resiliency and humbleness, especially during difficult periods.

I posted this comment to show my readers that there are other large plans which are doing a great job managing assets and liabilities and their results don't get the media attention they deserve. Ontario is now looking at pooling public pension plans and what the comments on my blog show you is they have the resources to pull it off. It's no wonder some of the best defined-benefit plans in the world are in Ontario; it's a breeding ground for excellence in pension management.

Below, Derek Dobson, CEO of the CAAT Pension Plan, discusses the plan highlighting its benefits and governance. Congratulations to CAAT and OPSEU Pension Trust for delivering excellent results and remaining fully funded at a time when most plans are struggling with deficits.