OPTrust Gains 15.3% in 2021, Remains Fully Funded
The OPSEU Pension Trust is reporting a net investment return of 15.3 per cent for 2021, a result driven by strong private equity performance.
In its 2021 funded status report, the OPTrust said its private equity portfolio generated a net return of 52.2 per cent. By comparison, public equities provided a net return of 12.9 per cent. The OPTrust’s average net investment return for the last 10 years is 8.9 per cent. And it maintained its fully-funded status for the 13th consecutive year.
The pension plan — which currently has more than $25 billion in net assets — also lowered its discount rate from three per cent to 2.85 per cent last year.
“Our role as a pension plan is to look beyond the short term and into the future to pay pensions for generations of Ontarians,” said Peter Lindley, president and chief executive officer of the OPTrust, in a press release. “While the impact of the pandemic will be felt for years, together we have continued to move forward by doing what we do best: focusing on our members so they can have peace of mind knowing their pension is secure.”
In 2021, the OPTrust surpassed 100,000 plan members and welcomed the 50th plan sponsor to its OPTrust Select plan. It also appointed its first diversity, equity and inclusion leader to develop and implement a three-year strategy that has established more integrated and measurable approaches to responsible investing across the entire portfolio, according to the release.
OPTrust put out a press release stating it remains fully funded for a 13th consecutive year:
OPTrust today released its 2021 Funded Status Report, Moving Forward, which details the Plan’s financial results and fully funded status. In 2021, OPTrust achieved a net investment return of 15.3 per cent and lowered its discount rate. Over the past 10 years, the Plan’s average net investment return is 8.9 per cent.
Our role as a pension plan is to look beyond the short term and into the future to pay pensions for generations of Ontarians,” said Peter Lindley, President and CEO of OPTrust. “While the impact of the global pandemic will be felt for years, together, we have continued to move forward by doing what we do best: focusing on our members so they can have peace of mind knowing their pension is secure.”
OPTrust recognized two significant growth milestones in 2021 – surpassing 100,000 members and welcoming the 50th new employer to OPTrust Select. Additional highlights include the appointment of OPTrust’s first Inclusion, Diversity and Equity leader to develop and implement a robust three-year strategy, establishing more integrated and measurable approaches to responsible investing across our investment portfolio, and delivering over a billion dollars in pension benefits to members across hundreds of Ontario communities.
OPTrust’s vision is to deliver peace of mind in retirement for our members, to invest sustainably for the long-term health of the Plan and to create an inclusive and fulfilling work experience for our people,” said Lindley. “In 2021, we delivered on that vision by making meaningful progress towards a more inclusive workforce, investing in a risk-efficient manner, and maintaining our fully funded status for the 13th consecutive year.”
The OPTrust team continued to provide an exceptional service experience to members. In 2021, members and retirees rated their service satisfaction as 8.8 out of 10. We also achieved a top 10 global placement by CEM Benchmarking Inc. for service, and top two among Canadian peers. OPTrust continued to strengthen actuarial assumptions to enhance the long-term funding health of the Plan by lowering the discount rate to 2.85%, net of inflation, from 3.0% in 2020.
Additional information about OPTrust's 2021 strategy and results is available in Moving Forward.
With net assets of over $25 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 100,000 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.
Earlier today, I had a Teams meeting with Peter Lindley, President and CEO of OPTrust, to go over the 2021 Funded Status Report.
I want to thank Peter for taking the time to talk to me and also thank Jason White and Claire Prashaw for setting up this meeting, attending it and sending me embargoed material beforehand allowing me to properly prepare.
They began by talking about my last comment on the gender gap in pensions and told me they liked it as it highlights an ongoing problem we need to address (OPTrust Select is doing its part to address it; more on that later).
On the crisis in Ukraine, OPTrust hasn’t put out a statement yet but Peter told me they hold no direct investments in Russia, only indirect investments through passive indexing and some external managers but these are “negligible” and they’re working to wind them down and will comply with all laws.
He then gave me a high level overview telling me while 2021 was a great year, over the past 10 years, the Plan’s average net investment return is 8.9% and more importantly, it's the 13th consecutive year that the Plan remains fully funded.
They lowered the discount rate by 15 basis points to 4.85% nominal (2.85% real) to ensure the Plan remains sustainable over the long run.
He said he was proud of Member Services where members and retirees gave them high marks, rating their satisfaction an average 8.8 out of 10. Moreover, they were rated among the top 10 globally and top two among our Canadian peer group for the services they provide in a global benchmarking study conducted by CEM Benchmarking Inc.
Peter told me their Member Services team fielded many calls, answered numerous online requests and supported members with their "life events" like retirement, leave of absence, change in marital status, etc.
He also told me they surpassed the 100,000 member milestone and added their 50th new member to OPTrust Select, growing membership to over 1700, "most of them women working in Ontario's non-profit sector".
[Note: Jason told me they will soon onboard their 53rd employer and Claire told me demand remains strong and the pandemic only "accelerated demand" for retirement security. ]
Here are some of the highlights for 2021:
We talked about responsible investing and how OPTrust takes engagement with companies seriously.
Peter told me Alison Loat and her team are revamping OPTrust's responsible investing strategy which was last done back in 2018 and a report will come out in the first half of this year.
I told him I hope they will focus just as much on the "S" in ESG as the "E" and he said they already are doing this.
Here are some highlights on OPTrust's responsible investing for this past year:
A quick note to OPTrust and all other Canadian pensions, there are more than 6.2 million Canadians—almost 22% of the population in this country—aged 15 years and over that are living with some form of disability that affects their level of freedom, independence or quality of life.
December 3rd, 2021 was the United Nations International Day for Persons with Disabilities and OPTrust hosted an event with Danielle Peers, a Paralympian, professor, community organizer and artist:
December 3 was the United Nations International Day of Persons with Disabilities. We were honoured to have Danielle Peers, a Paralympian, professor, community organizer and artist, share their personal stories to create an even more inclusive community around us. #IDPWD2021 pic.twitter.com/O3L4zQ805G— OPTrust (@OPTrust) December 6, 2021
It's worth adding this to your IDE highlights as disabilities rights is an important topic we need to talk more openly about.
I know Peter Lindley is a big believer in this and we've had a few private conversations on this topic.
Alright, back to OPTrusts' 2021 results.
Below, you can view the gains by asset class:
Now, Peter told me a lot of the private equity assets came back strong last year and their valuations benefited and they realized on some investments given the strong demand for these assets.
From the Funded Status Report (page 21):
Private equity is expected to generate higher returns than public equity over the long term while providing a smoother volatility profile. Our private equity strategy, which focuses on buyout investments and lower-risk private equity and debt investments, allows us to identify a broad range of investment opportunities and execute upon those that offer the most attractive risk-adjusted returns. We invest directly into private companies, typically alongside partners and indirectly, through private equity funds.
We committed $809 million of capital in 2021, including $775 million to 14 new investments despite ongoing challenges in developing new relationships and completing new transactions as a result of the pandemic. Net assets under management in private equity grew to $4.1 billion at December 31, 2021, compared to $3.2 billion at year-end 2020.
Our private equity portfolio performed very well in 2021. Strong operating performance, growth activity and favourable market conditions drove valuation increases across the portfolio. In addition, we were able to capitalize on the robust market conditions to generate various successful partial and full sales of portfolio investments. The private equity portfolio generated a net return of 52.2 per cent in 2021.
Private Equity was definitely on fire in 2021. You should read an older comment of mine, Understanding Private Equity at OPTrust, to see how Sandra Bosela, Co-Group Head, Managing Director and Global Head of Private Equity, and her team manage those assets.
In Infrastructure, Peter Lindley told me OPTrust also realized on some oil & gas investments as well as some renewable energy investments they did a long time ago as "they were early entrants in that sector", capitalizing on strong demand for these assets:
Infrastructure investments add diversification to the total fund and act as a partial inflation hedge. They also provide cash flow and the potential for return enhancement through long-term capital growth.
The platform approach to our infrastructure investment strategy continued to generate attractive returns while also creating the opportunity to deploy $215 million in new capital and commitments in a challenging COVID-19 operating environment. While the bulk of our focus and new acquisition or development activity was through our platforms, we were also able to opportunistically take advantage of more constructive market conditions and sell two of our oil and gas midstream investments. The remainder of the portfolio showed strong performance, particularly our transportation assets after a subdued 2020. The infrastructure portfolio generated a net return of 33.0 per cent in 2021.
In Real Estate, I noted this:
We committed to 11 new investments totaling $563 million in 2021. These investments were primarily focused on the multi-family residential and industrial property types and are all within North America. New commitments were partially offset by $76 million in realizations. The real estate portfolio generated a net return of 18.5 per cent in 2021.I would urge you to read the details on all portfolios on pages 23-25 of the 2021 Funded Status Report.
In fact, take the time to read the entire 2021 Funded Status Report, it is very well written.
I thank Peter Lindley for talking to me earlier today and would recommend you to reread my conversation with James Davis, OPTrust's CIO and Kevin Zhu, Managing Director and Head of Portfolio Construction Group, for more insights on how they manage risks at a portfolio level.
Below, Peter Lindley, President and CEO of OPTrust, on what attracted him to come to OPTrust and why he loves being an advocate for defined-benefit pensions.
I told him: "You and Derek Dobson are the last of a dying breed, publicly advocating for DB pensions now that Jim Keohane retired from HOOPP (Jim is fine, sits on AIMCo's Board which Mark Wiseman chairs)"