OMERS Gains 15.7% in 2021
OMERS, the defined benefit pension plan for municipal sector employees in the province of Ontario, today announced a 2021 return of 15.7%, net of expenses, which equates to $16.4 billion of net investment income. This result exceeded the Plan’s absolute benchmark return of 6.6% by more than $9 billion. OMERS net assets grew to $121 billion at December 31, 2021.
“Our strategy of global diversification and a relentless focus on a portfolio of high-quality assets, delivered exceptional returns for our hard-working members in 2021,” said Blake Hutcheson, OMERS President and Chief Executive Officer. “We are pleased that we exceeded our benchmarks across all segments of our portfolio. And now we look to the future with deep, dedicated international teams and ample capital to deploy in support of our long-term strategies.”
Four key factors drove the outperformance relative to our benchmark:
Our portfolio of public equities returned 20.7%, reflecting a strong year in public markets.
Our private equity businesses grew earnings, both organically and through acquisitions. Private Equity returned 25.8%, which reflects higher valuations across our portfolio, including Ventures and Growth Equity, and the sale of one of our European service businesses during the year.
Our higher allocation to industrial real estate assets created value as demand grew for warehousing and logistics spaces, resulting from the strength of e-commerce. Our real estate assets earned a 15.9% return and our real estate business, Oxford Properties, continued to expand its global footprint.
Our infrastructure investments continued to deliver positive and consistent returns, earning 10.7% in 2021, underscoring our long-term strength in this asset class.
For more detail, please refer to the asset class table below.
Also in 2021, OMERS announced a net-zero greenhouse gas emissions goal across its portfolio by 2050, expanding on its initial commitment to reduce the portfolio’s carbon intensity by 20% by 2025.
“OMERS 10-year average net return now stands at 8.0%,” said Jonathan Simmons, OMERS Chief Financial & Strategy Officer. “Long-term returns have helped to improve the Plan’s funded status from 86% in 2012 to 97% today, while enabling OMERS to reduce our real discount rate by 50 basis points to 3.75% over the same period.”
This past year also brought OMERS to the cusp of an important milestone, as it prepares to mark its 60th anniversary this spring. “For six decades, OMERS has been providing secure, defined benefit pensions to our members. Our entire team is connected and inspired by the work we do in service of those who take care of our Ontario communities. We look forward to continuing to build a sustainable, affordable and meaningful plan for the next sixty years and beyond,” Mr. Hutcheson concluded.
Further detail on OMERS 2021 results is provided in our Annual Report, which is available .
Founded in 1962, OMERS is one of Canada’s largest defined benefit pension plans, with $121 billion in net assets as at December 31, 2021. OMERS is a jointly-sponsored pension plan, with 1,000 participating employers ranging from large cities to local agencies, and over half a million active, deferred, and retired members. OMERS members include union and non-union employees of municipalities, school boards, local boards, transit systems, electrical utilities, emergency services and children’s aid societies across Ontario. Contributions to the Plan are funded equally by members and employers. OMERS teams work in Toronto, London, New York, Amsterdam, Luxembourg, Singapore, Sydney and other major cities across North America and Europe – serving members and employers and originating and managing a diversified portfolio of high-quality investments in public markets, private equity, infrastructure, and real estate.
More details on OMERS 2021 results is provided in their Annual Report, which is available .
Earlier today, I had a chat with Blake Hutcheson, OMERS President and CEO and Jonathan Simmons, OMERS Chief Financial & Strategy Officer.
I want to begin by thanking both of them for taking some time in their busy schedule to quickly go over the results with me and also thank Neil Hrab, OMERS Manager, Media Relations and Lori McLeod, OMERS Vice President Strategic Communications for setting up this Teams meeting and assisting.
Let me begin by stating these are excellent results and I wasn't surprised in the least that OMERS bounced back strongly from last year's 2.7% loss which I covered here.
In fact, I recall stating this:
The pandemic disproportionately hit OMERS for all the reasons I cited above but it's time to forget about last year and move forward.
I hope this comment helps clarify some issues and to all the critics, and there are a few, I can assure you after speaking with Blake, I'm much more understanding of what went wrong and I do not think there is anything fundamentally wrong at OMERS or with their long-term strategy, quite the contrary.
Anyway, let me turn first to my conversation with Blake where he began by stating everyone at OMERS is thinking about the people of Ukraine after Russia invaded their country and displaced hundreds of thousands.
"We have many members and employees of Ukrainian descent and they have families over there as do many Canadians. It's a terrible situation and our thoughts and prayers go to Ukrainians and its gutsy president who is showing tremendous leadership in the face of such hardship."
Blake posted this on Linkedin earlier today before OMERS results were made available:
He specified that "OMERS has no direct investments in Russia or Ukraine".
We moved on to discuss OMERS results and I commended them, saying they're terrific all around.
Blake told me all the portfolios delivered strong returns last year adding: "With the exception of a few minor tweaks, we stuck to our strategy and we saw things turning from June 2020 till the end of last year as it paid off."
Importantly, he referred to long-term returns, stating "We measure a quarter over 25 years but the 3 and 10-year annualized returns are now back at 8% (above the 6.6% absolute return target)."
Blake added: "The funded status remains strong, 97% on a smoothed basis and 100% on a fair value basis, a huge improvement from 2012 when we were 86% funded (smoothed basis)."
I asked Jonathan Simmons, OMERS Chief Financial & Strategy Officer, why they lowered the real discount rate to 3.75% and he told me: "The 50 basis point decline in the real rate is to fortify our balance sheet and add a cushion to mitigate against changing plan demographics and the possibility of bad outcomes if low rates/ low growth persist in the future."
I forgot to ask Jonathan if OMERS adopted conditional inflation protection but I did find this on its website:
Inflation protection increases OMERS retirement, disability and survivor pensions each year, based on the increase in the Consumer Price Index (CPI), as follows:
Benefits earned on or before December 31, 2022 receive full inflation protection, up to a maximum increase of 6%. Any excess is carried forward so it can be used in later years when the CPI increase is less than 6%.
Benefits earned on or after January 1, 2023 are subject to Shared Risk Indexing, meaning that the level of inflation protection will depend on the OMERS Sponsors Corporation (SC) Board’s annual assessment of the financial health of the OMERS Plan.
The increase as of January 1, 2022 is 2.74%.
In December, we send retired members and survivors a personalized Annual Statement of Pension showing the details of their January pension increase. The statements are posted on myOMERS, then mailed to members who receive their pension information by paper mail.
Jonathan also explained to me that OMERS has an absolute return benchmark of 6.6% so the 15.7% net return for 2021 represents $9 billion of value-added.
Blake added: "There are lots of headwinds in 2022, we did a lot of dispositions in Private Equity in the first quarter thus far and have $6-$8 billion in fire power if we need it."
We then moved on to discuss the big gains in real estate, 15.9% net, a complete turnaround from last year when the portfolio lost 11.4%.
Blake told me the real estate portfolio which now stands at roughly $20 billion ($80 billion on a levered basis) got hit from legislative lockdowns in 2020 but the retail and office assets remain strong and came back nicely last year.
"We did everything we can can to accommodate our great tenants during the pandemic."
Moreover, there is ongoing repositioning in that portfolio as "multifamily,industrial (logistics) and life sciences" are gaining prominence and this in a globally diversified portfolio.
You should track Oxford Properties media releases here to really appreciate all the deals they are entering, including their recent entrance in San Diego's life science market with US$464 million acquisition of 13-building portfolio.
Jonathan pointed out that OMERS doesn't just acquire real estate, "it has the platforms to develop it too" and this also provides significant value added.
On responsible investing, Jonathan told me they have "$18 billion invested in green assets" right now and that includes energy efficient buildings and power generation and they plan on investing in electrification and other assets to achieve their net zero targets.
You can read more behind OMERS' carbon footprint analysis here.
Lastly, OMERS recently announced research confirming its value extends meaningful economic and social value to Ontario:
OMERS supports more than 118, 000 jobs and $11.9 billion in economic activity in Ontario
People with a pension plan are almost 50% more likely to report higher satisfaction with life than people who do not participate in one
90% of OMERS retired members attribute higher life satisfaction with being part of a defined benefit pension plan
Two new reports released today highlight the economic contribution and social value generated across Ontario by pension plans. The reports, conducted by the Canadian Centre for Economic Analysis (CANCEA) on behalf of OMERS, reflect OMERS belief that jointly sponsored public sector pension plans in Canada bring value to the lives of members and confirm that this value extends beyond the individual member and into their communities.
The first report examines the 2020 economic contribution of OMERS activities to Ontario based on member spending of their retirement benefits payments and the Plan’s investments and operations in Ontario.
“OMERS is creating value in Ontario by delivering on our commitment to our members,” said Jonathan Simmons, OMERS Chief Financial and Strategy Officer. "The high-quality investments we make across the province and the billions of dollars in pension benefits we pay every year produce meaningful direct and indirect economic benefits that extend into communities. Our members also report higher levels of good health and less reliance on public income supports, freeing up resources to be used elsewhere.
"As we prepare to mark our 60th anniversary later this spring, the results of these studies underscore the importance of defined benefit pensions as part of a strong pension sector and reinforce the value of access to retirement savings opportunities,” he concluded.
Leveraging the survey responses of Ontario-based OMERS members and the general public, the second report explores the social value generated by pension plans. This study found that providing a secure and stable source of income in retirement delivers value beyond pure monetary benefits. It underlined the role a pension income plays in improving the lives of OMERS members, strengthening communities in Ontario and generating stronger bonds between employees and employers, supporting retention and productivity.
The research affirmed a strong association between pension plan participation and an enhanced sense of well-being, with higher life satisfaction for both active and retired OMERS members. Among OMERS retired members, their higher life satisfaction is associated with the secure and stable income they receive from OMERS. Specifically, value is attributed to increased financial security, better health, and less stress as well as providing the opportunity to take an active role in their community through volunteering and charitable giving.
“Our members come to work every day to serve the people and communities around them. They manage our cities, towns and villages, keep transit moving, water safe to drive, schools running, and answer emergency calls. We are proud to serve them and have long believed that the value of a pension reaches far beyond the members who receive it. The CANCEA research findings confirm our beliefs,” says Celine Chiovitti, Executive Vice President and Head of Pensions. “The findings also reinforce a clear connection between employees and the employers who provide access to retirement benefits, demonstrating the importance of a strong pension offering on employee retention.”
Find more information on the studies, including the full research reports on our .
Backgrounder: Research highlights and findings
Economic Contribution Study
Based on 2020 OMERS data
OMERS contributes approximately $11.9 billion to Ontario’s GDP
OMERS supports 1 in every 64 jobs in Ontario, or 118,000
A quarter of these jobs (28,700) are held by people under the age of 30
Almost one-third, or 39,000, of the 118,000 jobs are in rural communities
OMERS activity generates more than $3.3 billion in provincial and federal income tax on pensions and wages, consumption taxes on spending, and corporate tax. This tax revenue helps to pay for programs and services that benefit all Ontarians
OMERS commercial real estate investment footprint in Ontario covers more than 25 million square feet of office, retail and industrial space, hosting 65,000 employees and 1,700 firms
OMERS invests in Bruce Power, which supplies over 30% of Ontario’s electricity
Social Value Benefits study
CANCEA considered responses of more than 4,000 OMERS members and over 1,000 respondents from the general Ontario population to a 2021 online survey. The study found a statistically significant association between pension plan participation and an enhanced sense of well-being with higher satisfaction with life, compared to people who do not participate in a pension plan, for both active and retired members in the OMERS Plan. This was driven by a feeling of financial security and better health and reduced stress, plus more community engagement and leisure time.
People with a pension plan were almost 50% more likely to report higher satisfaction with life than people who do not participate in a pension plan
90% of OMERS retired members attributed higher life satisfaction with being part of a defined benefit pension plan
OMERS retirees are over 50% more likely to report higher satisfaction with life than people who do not participate in a pension plan
Responses from OMERS retired members indicated the following:
20% higher feeling of financial security
48% felt that they had saved well or extremely well to meet their retirement income needs
58% less likely to be dependent on the Federal Government’s Guaranteed Income Supplement
50% less likely to experience a decrease in financial security due to unexpected circumstances, like the pandemic
15% higher satisfaction level with their health
42% rated their physical health as very good or excellent
22% more likely to report lower levels of stress
29% less likely to attribute stress to financial concerns
13% higher satisfaction level with feeling part of their community
10% higher satisfaction level with their ability to spend time on things that are important to them
38% more likely to volunteer their time within their community
94% donated to charities and not-for-profits
The survey also highlighted key benefits to employers:
90% of active OMERS members said the pension plan plays a part in their decision to remain with their employer
87% of members under the age of 35 said OMERS membership is an important factor in their decision to stay with their employer
79% of OMERS retirees agreed that their pension played a role in remaining in their job
Blake and Jonathan talked to me about this research and it shows just how important OMERS is to its members, its province and the country.
I think Celine Chiovitti, Executive
Vice President and Head of Pensions nails it here:
“Our members come to work every day to serve the people and communities around them. They manage our cities, towns and villages, keep transit moving, water safe to drive, schools running, and answer emergency calls. We are proud to serve them and have long believed that the value of a pension reaches far beyond the members who receive it. The CANCEA research findings confirm our beliefs. The findings also reinforce a clear connection between employees and the employers who provide access to retirement benefits, demonstrating the importance of a strong pension offering on employee retention.”
Last week, I spoke to CAAT Pension Plan's CEO and Plan Manager, Derek Dobson, on this importance of pensions and how we can save Canada's retirement system and economy. Take the time to read my comment and watch the full podcast here.
I keep harping on this, pensions are really about people, they are all about securing a better retirement outcome for people so they don't have to worry about financial security during their golden years.
And securing better retirement outcomes is good for our economy over the long run so we need to start thinking about pension policy the same way we think about health and education in this country.
I have no doubt that demographics will force us to do so in the future but I warn everyone, it's time to start thinking about these issues now to prepare for the future.
The discussion on asset class performance is on pages 56-61 and s worth reading:
I also highly recommend you read the discussion & analysis on compensation starting on page 117 and always remember long-term performance drives compensation. This is why compensation fell in 2020 and rose last year to reflect stellar results.
And by any measure, OMERS' performance last year was stellar and its members can rest assured this is a world-class organization managing their retirement savings in their best interests.
You can read a this Bloomberg article to gain more insights. Blake said this:
“Last year was a spectacular year for us and and those are hard to replicate,” Chief Executive Officer Blake Hutcheson said in an interview Monday. “But we believe in our people and we certainly have optimism for this year” even with rising interest rates, accelerating inflation and political risks, he said.
He told me they remain humble whether it's a spectacular year or lousy one and always focus on the long run.
Let me thank Blake and Jonathan again for taking the time to talk to me earlier.
Below, a recent podcast featuring Blake Hutcheson, President and CEO of OMERS, where he discusses why he thinks everyone should "believe in tomorrow".
In conversation with Goldy Hyder on the Speaking of Business podcast, he discusses the challenges of leadership during the COVID-19 pandemic.
He also shares some of the lessons he learned growing up 200 km north
of Toronto in the town of Huntsville. “To me the ticket for getting
ahead as a society is putting [aside] differences and working together
in a trusting way. Small towns do that.”
If you talk to Blake, you'll notice he's not only a very nice guy, he's a great leader and inspires confidence because no matter how hard the going gets, he remains optimistic (he got that from his father who was an entrepreneur).