A Conversation With OMERS' CEO and CFO/CSO on Their Strong 2024 Results
The Ontario Municipal Employees’ Retirement System is reporting a return of 8.3 per cent as at Dec. 31, 2024.
The investment organization surpassed its 7.5 per cent benchmark for 2024 by achieving $10.6 billion in investment returns during the year. Its net assets grew from $128.6 billion in 2023 to $138.2 billion at the end of 2024.
The investment organization’s latest financial report found that over the past 10 years, the OMERS has averaged an annual investment return of 7.1 per cent increasing the value of the plan by $70.5 billion.
The double-digit investment return for the OMERS was credited to the performance of public equities (18.8 per cent) and private credit (12.6 per cent) with private equities (9.5 per cent), infrastructure (8.8 per cent), public credit (six per cent) and government bonds (one per cent) rounding out the year-end result. Real estate (negative 4.9 per cent) was the only investment category that posted a loss in 2024.
In a press release, Jonathan Simmons, chief financial and strategy officer at the OMERS, said the organization positioned the plan well by taking actions to diversify its global portfolio.
“[The] OMERS public equity investments delivered double-digit performance supported by strong contributions from private credit and infrastructure. Our net investment results benefited from our active strategy to maintain currency exposure to the U.S. dollar.”
He added that real estate returns assets were held back due to lower valuations while its asset mix continued to shift toward higher exposure to fixed income.
The investment organization also reported it reached a 58 per cent reduction in its portfolio carbon emissions intensity compared to 2019. Additionally, its allocation to green investments grew to $23 billion.
At the end of 2024, more than half (53 per cent) of the OMERS’ assets are located in the U.S. followed by Canada (19 per cent), Europe (17 per cent) and a combination of Asia-Pacific and the rest of the world (11 per cent).
Today, OMERS released a press release covering its 2024 results:
OMERS, the defined benefit pension plan for Ontario’s broader municipal sector employees, achieved a 2024 investment return of 8.3%, or $10.6 billion, net of expenses, exceeding its 7.5% benchmark for the year. Net assets at December 31, 2024, grew to $138.2 billion from $128.6 billion in 2023. The Plan reported a smoothed funded status of 98%, up from 97% in 2023. Over the past 10 years, OMERS has averaged an annual investment return of 7.1%, net of expenses, adding $70.5 billion to the Plan.
“Our strong result in 2024 reflects the quality of our people and portfolio, our active strategic decisions, and our steady progress as a long-term investor. Since becoming CEO of OMERS, I have been incredibly proud of the work of our leaders and their teams, as well as the forward-thinking strategies we have implemented over the last four years as we emerged from the pandemic. This combination has generated an average annual net return of 8.1% during that period,” said Blake Hutcheson, OMERS President and Chief Executive Officer. “As we look to the future, we are steadfast in our view that quality will see us through an unpredictable global landscape and the cycles ahead. Our talented team is focused on delivering our pension promise and is honoured to work in service of our almost 640,000 members.”
“Our actions to diversify the global portfolio positioned the Plan well in 2024,” said Jonathan Simmons, OMERS Chief Financial and Strategy Officer. “OMERS public equity investments delivered double-digit performance supported by strong contributions from private credit and infrastructure. Our net investment results benefitted from our active strategy to maintain currency exposure to the US dollar. Our real estate assets continue to generate strong operating income, but returns were held back due to lower valuations. Our asset mix continued to shift toward a higher exposure to fixed income, where return opportunities remain attractive. We expanded our overall use of leverage as we continued to use debt prudently to enhance our investment returns.”
This year, we are reporting that OMERS achieved a 58% reduction in its portfolio carbon emissions intensity, relative to 2019, and we reported an increase in green investments to $23 billion. For more information on how we define green investments, please refer to the OMERS Climate TaxonomyOMERS is highly rated across independent credit rating agencies, including ‘AAA’ ratings from S&P, Fitch, and DBRS.
OMERS will publish its 2024 Annual Report on February 28, 2025.Media Contact:
Don Peat
dpeat@omers.com
416.417.7385
About OMERS
OMERS is a jointly sponsored, defined benefit pension plan, with 1,000 participating employers ranging from large cities to local agencies, and almost 640,000 active, deferred and retired members. Our 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. 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 government bonds, public and private credit, public and private equities, infrastructure and real estate.2024 Highlights
By the numbers
2024 investment return of 8.3%, or $10.6 billion, net of expenses
$138.2 billion in net assets
10-year average annual net return of 7.1%
639,546 OMERS members
98% smoothed funded ratio
3.70% real discount rate, 5 basis points lower than 2023
$6.5 billion total pension benefits paid
We are reporting a 58% reduction in the portfolio carbon emissions intensity, relative to 2019
$23 billion in green investments
96% OMERS member service satisfaction
93% of employees are proud to work for OMERS and Oxford (+5 points above best-in-class)
Transactions in 2024
OMERS remains focused on deploying capital in line with our target asset mix. We are a disciplined investor in high-quality assets that meet the Plan’s risk and return requirements. Please find below highlights of investments made in 2024.
Acquired Italy’s Grandi Stazioni Retail which manages the entirety of commercial and advertising spaces in 14 of Italy's major railway stations and hubs for the high-speed rail network, which collectively receive over 800 million visits a year. The stations include over 800 commercial units, totaling around 190,000 Sqm of leasable space, and over 1,800 media assets.
Increased our stake by 13.5% in Indian roads business Interise Trust, one of the largest Indian Infrastructure Investment Trusts in the roads sector.
Supported XpFibre to successfully raise €5.8 billion of credit facilities, marking one of the largest multi-sourced transactions in the European digital infrastructure market to date. XpFibre is the largest independent Fibre-to-the-Home (FTTH) operators in France delivering high speed internet to approximately 25% of the French territory in terms of homes passed.
Announced an agreement to acquire Integris, a leading provider of IT services in the United States.
Issued $3.2 billion in bonds by OMERS Finance Trust, including our inaugural AUD offering - an AUD 750 million, 5-year note.
Announced the signing of an exclusive agreement with Maritime Transport at West Midlands Interchange in the UK.
Participated in the US$15M Series A investment into Brightwave, an Al-powered research platform that delivers insightful and trustworthy financial analysis on demand. It was named as one of TIME magazine's top inventions of 2024.
Participated in two follow-on investments. The first was in Medal, an online platform that lets gamers clip and share video of their gameplay and Altana, a company that applies artificial intelligence to create a dynamic, intelligent map of the global supply chain.
Closed our acquisition of Kenter, an energy infrastructure solutions business providing medium-voltage infrastructure and meters to over 25,000 commercial and industrial business customers in the Netherlands and Belgium.
We rotate capital out of assets with the same level of discipline with which we invest. This activity generates capital, which we deploy into future investment opportunities that align to our strategy. In 2024, we announced or completed the following realizations:
Announced the sale of a stake in East-West Tie Limited Partnership which owns the East-West Tie Line, a 450-kilometre, 230 kV double-circuit transmission line spanning from Wawa to Thunder Bay, along the north shore of Lake Superior.
Completed the sale of LifeLabs, a trusted provider of community laboratory tests for millions of Canadians that had been owned by OMERS since 2007.
Completed a €182.5 million green refinancing on a comprehensively renovated Paris office asset.
Completed the sale of its £518 million UK retail park portfolio.
Completed the sale of CEDA, which had been majority-owned by OMERS since 2005.
Earlier today I had a chance to discuss OMERS' 2024 results with CEO Blake Hutcheson and CFO/ CSO Jonathan Simmons.
I want to thank them both for speaking with me and also thank Don Peat for setting up this discussion.
Blake began by giving me an overview of the results:
We are really happy. We unlocked an 8.3% return, our budget was 7.5%, generating $10.6 billion in profits. By any measure, in our view, it was a successful year.
Our 10-year return is 7.1%, we manufactured about $70.5 billion in incremental value add to the plan during that period.
If you watched our funded status in recent years, it just keeps getting better. Even this year, we went from 97% to 98% funded but we did that by taking down our discount rate from 3.75% to 3.7% which is making them more conservative. Our 98% funded would have been a better number had we not done that but we are balancing making it conservative with approaching 100%.
And I'm here to say we will break through that 100% in the foreseeable future.
You and I lived through this together but remember I was asked to come in as CEO in 2020, it was a difficult pandemic year for us and many others. But we assembled a team and put together a strategy at that time and as I reflect on it, the four fiscal years since with that team and that strategy, we unlocked an 8.1% return, which as you know is highly respectable by any absolute or relative standard.
That is what I watch carefully because it coincides with our new strategy and our new team. I am really pleased because it underscores our commitment to quality in people, quality in strategies, quality in assets and thinking long term. Four years the pattern makes, one year (is too short), you can make money or lose money, once you see how this plan is functioning, I'm really pleased we are seeing long term bona fides.
I agree, since Blake came in back in 2020, set up the team and strategy, things have progressively improved and you're seeing the long term benefits now.
I noted that there have been some mishaps on some transactions but at the portfolio level, the Fund is doing well.
Blake reminded me that in a very big family, there are always some problem children, most are average and a few might turn out to be superstars.
It's the same with a big pension portfolio of thousands of assets, there are always some problem areas, most are average and some are superstars but it's portfolio diversification that counts the most to pull you through and offer consistency of returns.
In Private Equity, I noted decent returns of 9.5% and asked Jonathan if that's due to the knew strategy of fund investments and co-investments to reduce fee drag.
Jonathan responded:
Well not yet. We made a decision that we will not continue with our European direct program. We are still managing the assets, we have good assets in the portfolio, still working on value creation strategies there.
As capital frees up from that business in the future, that's when you'll see us move more definitively into an indirect program but it's quite small at the moment.
I asked him what would he attribute the decent returns in Private Equity to and he added this:
Currency helped a lot this year. The green shoots in private equity are there but they're pretty small right now.
We are still hopeful liquidity will return to that market in a more convincing way as we continue throughout this year but currency was a big helper.
I asked him if currency also helped the Infrastructure portfolio with its decent gains and Jonathan responded:
A little bit, I mean currency helped us across our book this year but the Infrastructure business has been a terrific asset class for OMERS, steady, predictable returns.
Again, any idiosyncratic issue doesn't get in the way of a good portfolio strategy and we benefited from that for many years.
Blake then added this:
The other thing is the Private Equity business is largely US domiciled and the Infrastructure portfolio has a lot of Europe and Canada.
Infrastructure has been a consistent high single digit performer for us year in and year out. It did it again.
Our Public Equities portfolio had a really strong year, yes, some funds did better but they're more exposed to the Magnificent Seven.
Our Credit performed extremely well.
Real Estate delivered a negative return again last year. It had a good operating year in terms of leasing space and adding value but the cap rate expansion continued to haunt, particularly in our life sciences business. We think that is largely behind us and operating company is doing well and Oxford has the pepper back in its step. We expect it to return to decent returns in the years ahead.
I asked Blake if Industrials are still doing well and if Offices are coming back.
He explained to me that Industrials is where the biggest net effect of rent rises over the last seven years but because a lot of assets are commodity in nature, when cost of capital went up, cap rates went up and values came down but "fundamentals remain quite strong including the phone calls we've been getting in recent months on both sides of the border to prepare for any supply chain disruptions."
He told me Industrials fundamentals are quite strong and they think the cap rate expansion is behind it, adding: "We would buy our Industrial portfolio on our books all day long at the price we mark them to."
For Offices, he told me it's a tale of two cities where "high quality office space is actually doing better than most people think."
He said their (Office) portfolio in Canada is 96% leased. "It's among the highest quality office buildings primarily in Calgary, Vancouver and Toronto and it's doing well."
He also stated they're doing new development projects in office, one in Sidney for example "that is outperforming" and they built the Stack in Vancouver and it's outperforming.
"Depending on the quality of your product, it will depend on your valuations. We think offices have come a long way and we are thinking about building new offices as we think we can take advantages of supply and demand dislocations when nobody else has the courage to build."
I asked Blake if rates stay elevated this year, will the Real Estate portfolio get hit again.
He was careful to nuance his answer stating commodity real estate, lower quality portfolios are more vulnerable to elevated rates as their valuations will get hit a lot harder than the higher quality real estate portfolios.
I also asked him if Dan Fournier is managing growth deceleration at Oxford or implementing another growth strategy.
Blake praised Dan stating he has done an "extraordinary job at Oxford" despite the returns:
In life Leo, you write an exam on a Wednesday and might get it back two weeks later. In Real Estate, you write an exam on a Wednesday, you actually start to see your returns three years later.
Dan came in during at a difficult time, he showed remarkable leadership, he studied where we were winning, where we were losing, he's put together a strategy where what we believe is the right go forward strategy with a great team around him.
We've been blessed to have him, he's put Oxford in a really good position for the future.
Nothing turns on a dime, no real estate business globally was able to able to outrun what happened to cap rates, Oxford was no exception, but I'd still put his record against any of the big real estate players in the world. I still fundamentally believe the future is bright and I give a lot of credit to Dan for helping us reposition it.
Jonathan then talked about Private Credit saying the strategy continues to work, the space is getting a bit more crowded but they were there early and feel they can still get a decent return for the risk.
Lastly, I asked them what they are most worried about and Blake told me there is a lot of uncertainty right but they will continue to maintain a long-term view.
They are studying the effects of tariffs and how inflation can impact their liabilities but he feels they are well diversified and well positioned to handle whatever comes their way.
Let me once again than Blake and Jonathan for another enlightening discussion.
More details will be made public when OMERS publishes its 2024 Annual Report on February 28, 2025 (four days). It will be made available here.
Below, listen to OMERS CEO Blake Hutcheson deliver The Story of OMERS at the Empire Club of Canada (May 2024).
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