Fully Funded OPTrust Gains 8.9% in 2020

Today, OPTrust released a statement that it remains fully funded for a 12th consecutive year:

OPTrust today released its 2020 Funded Status Report, Taking Care, which details the Plan’s financial results and fully funded status. In 2020, OPTrust achieved an investment return of 8.9 per cent and lowered its discount rate. Membership in OPTrust Select, the defined benefit offering for Ontario’s nonprofit, charitable and broader public sectors, continues to grow. This ensures more frontline workers and essential service providers will have access to a secure, predictable retirement.

“Every day, the team at OPTrust takes care of members and their financial future in retirement, just as our members have cared for many Ontarians in their roles as public servants and nonprofit workers,” said Peter Lindley, President and CEO of OPTrust. “These workers fulfill some of the most essential services in our communities and the OPTrust team is focused on their well-being in retirement.”

This was OPTrust’s 25th year of delivering retirement security to members. During 2020, OPTrust’s Member-Driven Investing (MDI) strategy helped the Plan navigate the market turbulence caused by the COVID-19 pandemic, reflecting the diversification within the portfolio and the strong performance of OPTrust’s risk-mitigating strategies. MDI was designed to weather market volatility by maintaining the funded status of the Plan at the lowest risk possible.

“While no one could have predicted the events of the past year, we know that periods of volatility are always possible,” said Lindley. “The effectiveness of our Member-Driven Investing strategy was evident in the way the portfolio remained resilient, and the high level of liquidity we maintained which enabled us to take advantage of opportunities that arose.”

In keeping with the long-term focus of the Plan, OPTrust bolstered its commitment to sustainability in 2020 by completing carbon risk assessments, including measuring the carbon footprint of the public equity, fixed income, private equity and infrastructure portfolios. In recognition that we all have a role to play in ending systemic racism and promoting fairness, equality and acceptance, OPTrust also reviewed its policies and practices through a diversity lens, signed the BlackNorth Initiative Pledge and is continuing to pursue EDGE certification as a gender-balanced workplace.

While working from home, the OPTrust team continued to provide an exceptional experience to members. In 2020, members and retirees rated their service satisfaction as 8.7 out of 10, a top 10 global placement by CEM Benchmarking Inc. OPTrust continued to strengthen actuarial assumptions to enhance the long-term funding health of the Plan by lowering the discount rate to 3.0%, net of inflation, from 3.1% in 2019.

More detailed information about OPTrust's 2020 strategy and results is available in Taking Care at  www.optrust.com.


With net assets of over $23 billion, OPTrust invests and manages one of Canada’s largest pension funds and administers the OPSEU Pension Plan (including OPTrust Select), a defined benefit plan with over 98,000 members. 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 OPTrust's 2020 Funded Status Report here.

Earlier today, I had a chance to speak with Peter Lindley, OPTrust's President and CEO, to go over the results and more.

Let me first thank Peter for taking the time to chat with me and also thank Claire Prashaw and Jason White of OPTrust's Communications teams for setting up the Microsoft Teams meeting. After some initial glitches, I was able to finally get on and see all of them.

Anyway, Peter started by telling me OPTrust remains fully funded, they dropped the discount rate to 3% real (5% nominal) and net assets are over $23 billion.

He's proud of the team and the theme this year which is "Taking Care". On the website, you'll see his quote:

“It was a year of taking care of not only the Plan, but also each other; our communities, our team and our obligations to our members as we continued to deliver on our mission of paying pensions today, preserving pensions for tomorrow, while working from home.”

Let's face it, it was a tough year, many employees at OPTrust (and elsewhere) had to work from home, some in total isolation, others while juggling kids and taking care of elderly parents, so they rightly felt "Taking Care" in the broadest sense was the right theme to characterize a very challenging year.

Also, as Peter rightly noted, OPTrust not only administers the OPSEU Pension Plan, a defined benefit plan with over 98,000 members and retirees, through OPTrust Select, it manages the pensions of many people (mostly women) working at Ontario's non profit sector.

These are people earning a modest income taking care of others in their time of need so it only makes sense that OPTrust takes care of their retirement needs, making sure they can retire with peace of mind.

More on OPTrust Select below.

First, let's go over some investment stuff so that you understand how OPTrust manages money on behalf of its members.

I would encourage my readers to read OPTrust's Statement of Investment Policies and Procedures here as well as their investment beliefs here.

What is really critical to understand is this:

"Our investment objectives are driven by our liabilities. Our success is determined by how well we meet our pension promise to our plan members. We must earn sufficient real returns over the long-term to ensure the plan remains fully funded, while striving to keep the benefit level and contribution rate stable."

In order to achieve their investment objectives, OPTrust has adopted a Member-Driven Investing (MDI) strategy:

Our members want pension certainty. To accomplish this, we have created our Member-Driven Investing (MDI) strategy, which seeks to earn a return sufficient to keep the Plan fully funded at current benefit levels and contribution rates. This means we must strike the appropriate balance between risk and return. Taking too little risk would result in returns that are too low to keep paying benefits at the current contribution rate, but too much risk could increase the chances of being underfunded.

We face several challenges as we strive to keep the Plan fully funded:

  • Investment Environment – The evolution of COVID-19 and unprecedented monetary and fiscal expansion has extended the ranges of outcomes for interest rates, inflation and asset prices.
  • Plan Maturity – A declining ratio of active to inactive members has reduced our risk tolerance
  • Longevity Risk – Higher life expectancy increases the Plan’s pension obligations
  • Discount Rate for Funding Valuation – Lower interest rates have reduced our discount rates, in turn pushing pension obligations higher

To achieve our objectives in a difficult investment environment, our investment strategy is to harvest a diversified set of market risk premia across liquid and illiquid markets, while adding value through active management.

Now, Peter talked about OPTrust's three main portfolios:

  1. Their Liability Hedging Portfolio (15-20% of total assets, mostly government bonds)
  2. Their Risk Mitigation Portfolio (roughly 12% of total assets, includes gold, bonds, CTAs)
  3. Their Growth Portfolio (70% of assets, primarily in Private Equity, Real Estate, and Infrastructure)

Critically important, unlike its peers, OPTrust has only 10%-15% of its total assets in Public Equities, most of the risks are taken in Private Markets where they feel there are decent risk premia and where they can add value (Peter mentioned their drawdown was a fraction of the drawdown the TSX experienced last March and they had ample liquidity to redeploy in stocks).

You should all read a previous comment of mine where I went over understanding Private Equity at OPTrust, to really get a good sense of what Sandra Bosela and her colleagues do to add value in PE.

Also, Peter mentioned Rob Douglas, Managing Director of Real Estate, and the great things he's doing to add value, shifting the portfolio away from Retail and Offices into Industrials (logistics) and Multifamily before the pandemic hit.

Now, looking at the 2020 Funded Status Report, one thing I noticed is OPTrust does not provide a detailed breakdown of its portfolio returns by asset class over the last year, five years and ten years but they do provide the relevant information if you read the details of the report:

  • The private equity portfolio generated a net return of 12.3% in 2020.
  • The real estate portfolio generated a net return of 1.2% in 2020.
  • The infrastructure portfolio generated a net return of -0.5% in 2020.
  • The credit portfolio earned a net return of -3.9% in 2020.
  • Multi-strategy investments generated a net return of -1.6% in 2020.
  • The Risk Mitigation Portfolio earned a net return of 26.3% on the year.
  • The -3.6% weight of the Funding Portfolio reflects OPTrust’s overall balance sheet leverage.

You can read the report for all the details of each asset class but clearly Private Equity generated the bulk of the returns in private markets, real estate generated a very decent 1.2% during an extremely challenging year, and infrastructure was down marginally owing to some transportation infrastructure investments.

But the big gains came from the Risk Mitigation portfolio which Peter explained is made up of U.S. Treasuries, safe-haven currencies, gold and trend-following strategies (CTAs), all of which came through big last year.

It's important to note, however, that the bulk of the assets are in growth and that's mostly Private Equity, Real Estate and Infrastructure and that OPTrust has roughly 10% in Public Equities, which is good when stocks get clobbered, less good when stocks melt up.

Still, overall I have to say, these are impressive returns during a very difficult year and Peter did mention they used very little leverage and were very diversified across geographies and sectors in private markets which helped mitigate the downside.

In fact he explicitly stated: "We use less leverage in private equity than our peers and we focus on being diversified by sector and geography." 

We then moved on to discuss OPTrust Select, an innovative DB pension OPTrust offers to those working at Ontario's non-profit sector.

To my surprise (and Peter's too), OPTrust grew its membership during the pandemic! 

In fact, Jason White shared this with me after the web meeting:

Interest in OPTrust Select has been sustained throughout the pandemic. At the end of 2020, membership in OPTrust Select had grown to 43 organizations and close to 1,400 members. As Peter noted, this means more frontline workers and essential service providers will have access to the security of a defined benefit pension.

A map showing OPTrust Select’s member organizations can be found here.

This is really great news, the more workers that have access to a well-governed, well-managed DB plan, the happier I am.

And these workers really deserve a DB plan, they are mostly women doing a lot of hard work in our society, helping the poor, homeless, marginalized and we often take them (and other frontline workers) for granted but we really shouldn't.

Lastly, Peter Lindley discussed OPTrust's commitment to addressing climate change and he praised the work Alison Loat, Managing Director of Sustainable Investing and Innovation, and her small team are doing.

He told me they are not only looking at how ESG is being implemented across public and private markets, they're getting ready to make their first investment in an "incubation fund" very soon and Alison is part of a group which will publish a paper on Climate Action in May.

Great stuff, Alison is very enthusiastic and she's a great addition to OPTrust's team.

Who else do I think would make a great addition to OPTrust's team (or OMERS)? Mihail Garchev, BCI's former head of Total Fund Management and my buddy in Toronto, Steve Boucouvalas who knows more about trading currencies and generating currency alpha than anyone at any Canadian pension fund (both of these two individuals are far too humble, get to it James Davis and Satish Rai).

I mean it, I am tired of seeing good, smart and hardworking people that deserve a job at our large pensions waiting for Canada's large pension executives to hit their bid. And that includes yours truly who is tired of writing blog comments on pensions every night and wants to get back into investing to make some real money.

If I had a choice, I'd create a small team which includes me, Steve B, Mihail Garchev, Brian Romanchuk, Fred Lecoq, Simon Lamy and a few others and ask CPPIB, CDPQ, BCI or some other big Canadian pension outfit to fund our multi-strategy fund and get out of our way! (I might sound delusional but I'm dead serious).

Anyway, on that note, here's the executive compensation at OPTrust for 2020:

Given the excellent long-term returns (8.1% annualized since inception in 1994), it's well deserved and below their large peer group. Interestingly, the Private Markets executives are not listed here, an omission that needs to change as they are integral to OPTrust's success and they earn millions collectively.

Below, Peter Lindley, OPTrust's President & CEO, discusses what attracted him to OPTrust and why he and his team love taking care of their members. 

Peter is a great leader, he comes across exactly like this clip, namely, smart, authentic, empathetic, thoughtful, humble and super nice. I thank him for another delightful conversation and look forward to meeting him in person one day. 

As he stated as we contemplated turning the page on COVID: "Hope springs eternal."

I also embedded a Canadian Club panel discussion featuring Alison Loat, Managing Director of Sustainable Investing and Innovation, discussing ESG and Sustainable Investing. Mark Wiseman (AIMCo Chair), Gerald Butts (Eurasia Group) and Veronica Chau (BCG) also participated.

I look forward to hearing more from Alison in the second half of the year and wish her and her small team a lot of success.

As far as OPTrust's old and new members, they're very lucky their pension assets are being managed exceptionally we. Rest assured, they are taking good care of you and each other.