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OMERS Earns 12% in 2010 But Deficit Swells
Tara Perkins of the Globe and Mail reports, OMERS boosts return, funding deficit swells:
The
Ontario Municipal Employees Retirement System has posted a
12.01-per-cent rate of return for 2010, up from 10.6 per cent in 2009. But its funding deficit has tripled to $4.5-billion as its pension benefit obligations have increased.
OMERS
released a summary of its financial results Monday, with detailed
information to follow later this month. The fund, which provides
pension services to more than 400,000 people, is grappling with a
shortfall in the wake of the recession.
Temporary
contribution increases and benefit reductions are part of the strategy
to return it to balance. It requires a 6.5-per-cent annual return to
bring itself back into a surplus position in 2025.
“Based on
our asset mix policy and active investment strategy, we believe we can
generate average returns of 7 per cent to 11 per cent annually over the
next five years,” said chief financial officer Patrick Crowley. “Doing
so would return the plan to surplus between 2015 and 2020 - five to 10
years ahead of schedule.”
OMERS’ net
assets rose to $53.3-billion last year, up from $47.8-billion the prior
year. Its 12.01-per-cent return compares to a benchmark portfolio
return of 11.47 per cent. RBC Dexia Investor Services Ltd. has
estimated an 11.25-per-cent median return for large pension funds in
2010. Earlier this month, the Caisse de dépôt et placement du Québec
posted a 13.6-per-cent return for the year.
OMERS is in the midst
of working to shift its portfolio away from stocks and bonds towards
private market investments, such as private equity, infrastructure and
real estate. Its private equity portfolio delivered returns of 22.21 per
cent last year (the benchmark return was 28.05 per cent).
Infrastructure returned 10.10 per cent, compared to a benchmark of 8.5
per cent, while Oxford Properties returned 7.51 per cent, compared to a
benchmark of 6.65 per cent.
OMERS released this press release on their website:
Today,
OMERS announced its net assets rose to $53.3 billion as of December
31, 2010, up from $47.8 billion the year before. The total rate of
return in 2010 was 12.01 per cent, compared to 10.6 per cent in 2009.
The Plan’s growth in net assets for 2009 and 2010 combined was $9.9
billion.
“OMERS achieved excellent investment results in 2010,
supporting our mission of creating surplus wealth for plan members and
sponsors,” said John Sabo, Chair of the OMERS Administration
Corporation Board of Directors. “Our performance, which stems from our
asset mix shift to world-class private market investments, and strong
market investment returns driven by the recovery of the global
financial markets, reflects our focus on risk-adjusted returns, which
is designed to manage volatility and respond to our long-term liability
profile.” In the seven years since OMERS adopted a policy shifting its
asset mix more heavily into private market investments, the Plan has
earned an annualized return of 8.11% which includes the investment
return of -15.3% in 2008.
Like many other pension plans, OMERS
continues to face a funding shortfall caused by the 2008 global
economic downturn. The Plan’s 2010 funding deficit was $4.5 billion,
versus $1.5 billion a year earlier. These amounts are included in OMERS
financial statements, which will be available later in the first
quarter of 2011. Actuarial assumptions indicate OMERS requires an
investment return of 6.5% annually to keep assets and liabilities in
balance. That rate of return, combined with temporary contribution
increases and benefit reductions, will see the Plan return to surplus
in 2025. “Based on our asset mix policy and active investment strategy,
we believe we can generate average returns of 7% to 11% annually over
the next five years. Doing so would return the Plan to surplus between
2015 and 2020 – five to 10 years ahead of schedule,” said Patrick
Crowley, OMERS Chief Financial Officer.
OMERS
also continues to advance programs requested by various stakeholders
and codified in the OMERS Act 2006 and the Plan text. The first of
these programs, Additional Voluntary Contributions (AVCs), allows
members to invest their registered retirement savings in the OMERS
Fund, effective January 1, 2011. Other specific capital-raising
programs will be launched in 2011.
OMERS was named 2010 and 2011 Global Pension Fund of the Year, Canada, by World Finance
magazine. This award is based on excellence in member service,
innovation, risk management and investment performance. OMERS was also
named one of the country’s best employers for the third year in a row,
ranking 13th on Aon Hewitt’s 2011 list of the 50 Best Employers in Canada.
For a more detailed breakdown, click here to view the fact sheet.
The returns came from both public and private markets but I did notice
that even though private equity returned 22.2%, it underperformed the
benchmark which returned 28%. Borealis Infrastructure returned 10.1%
beating its benchmark by 160 basis points while Oxford Properties and
OMERS Strategic Investments marginally beat their benchmarks. OMERS
Capital Markets (public markets) delivered decent returns, outperforming
the benchmark by 93 basis points (the fact sheet doesn't provide
further details on fixed income and public equities).
The funding deficit is serious but they're trying to address it by
temporarily raising contribution rates and reducing benefits. As for
assuming 7% to 11% over the next five years, I think this is achievable
but it won't be easy. OMERS is betting big on private markets to
achieve these returns. We'll see if they can deliver them in what will
certainly prove to be treacherous markets.
Finally, Tara Perkins also reported in CTV, OMERS wants in on private pension plans:
Pension
funds want Ottawa to let them in on the new private-sector retirement
savings pools, allowing the funds to compete head-to-head against banks
and insurers.
The desire to cater to small businesses and
self-employed savers signals a shift in the way big funds operate, and
comes as the country’s retirement system enters a period of massive
reforms.
Some big funds want the
federal government to allow more players to administer the new pooled
registered pension plans (PRPPs), Michael Nobrega, chief executive
officer of the Ontario Municipal Employees Retirement System told
reporters in Toronto on Monday.
Federal Finance Minister Jim
Flaherty signalled in December that the government will push forward
with the development of PRPPs to help allay a looming retirement
savings crisis. Ottawa said the PRPPs, which are designed for people
without company pension plans, will be administered by “regulated
financial institutions.” The institutions will essentially offer
pension plans that small businesses or self-employed people can sign up
for. The idea is that through regulations and new laws, governments
will ensure that plan administrators charge lower management fees than
are currently available.
“Right now,
it’s insurance companies and the banks,” Mr. Nobrega said. “I would
suspect that the federal government would be wise to include a broader
range of providers other than simply the banks and insurance companies,
because the pension funds do have the muscle and investment systems to
do it.”
Financial institutions, and especially life insurers,
lobbied for the creation of PRPPs as an alternative to expanding the
Canada Pension Plan. Ottawa backed the idea because it was leery of
taking more money off paycheques during the economic recovery, and did
not have the necessary provincial support to expand the CPP, though it
is still considering doing so.
Under the PRPP proposal, plan
administrators would be responsible for receiving contributions to a
plan from individuals and employers, and responding to enquiries from
them.
“Consultations are still in their early stages,” Bram
Sepers, a spokesman for Ted Menzies, minister of state for finance,
said Monday. “As of today, no decisions have been made. Pension funds
are only one of the stakeholder groups being consulted for the
development of PRPP legislation.”
The establishment of PRPPs
comes as a number of pension funds are seeking new avenues for profit
and growth. Last month, OMERS launched “additional voluntary
contributions,” a program in which its members can elect to invest
additional money with the fund.
“We are
seeing millions of dollars coming in,” said Jennifer Brown, OMERS’
chief pension officer. So far, close to 2,000 people have signed up for
the program, she said.
The Ontario
government gave OMERS the ability to provide third-party investment
management services in 2009. Like other major funds, OMERS is shifting
its asset mix, taking more control of its investments, and seeking ways
to boost its relevance in the retirement market.
OMERS reported
its 2010 financial results on Monday, showing an annual return of 12.01
per cent or $5.4-billion, up from 10.6 per cent or $4.3-billion in
2009. For the first time since the financial crisis, the fund’s assets
exceeded their 2007 level, and now amount to $53.3-billion. However,
its funding deficit still tripled to $4.5-billion as its pension
benefit obligations have increased.
The run-up in equity markets
last year is helping pension funds to recuperate. Last week the Caisse
de dépôt et placement du Québec, which has been looking to offer its
depositors more tailor-made investment strategies, posted a
13.6-per-cent return.
“It really was the product of a lot of
things that we started doing in 2009: simplifying, taking our leverage
down, getting out of complex derivatives,” Caisse CEO Michael Sabia
said in an interview Monday. The pension manager was able to sell a
number of assets it was looking to shed, including complex real estate
debt, into a relatively strong market.
But Mr. Sabia is quick to
point out that one year’s returns don’t make a trend, and he is working
to position the fund for the long term. Having removed some of its key
risks, the Caisse is now embarking on the second chapter of Mr.
Sabia’s turnaround plan, in which it will decide what investment areas
to focus on in the future.
“The business we’re in is a marathon, it’s not a sprint,” Mr. Sabia said.
Mr. Nobrega is right, PRPPs cater to banks and insurance companies but
defined-benefit plans like OMERS, OTPP and the Caisse which is a fund
not a plan, should also be allowed to compete in this space as they
offer better products which invest in both public and private markets.
I covered the Caisse's 2010 results
last week. They were exceptionally strong, returning 13.6% and beating
the overall benchmark by 410 basis points (13.6% vs 9.5%). This came
after two tough years which included the 2008 disaster. But as I stated
last week, it's going to be tough for anyone else to beat these results.
And even though OMERS performed well compared to other large Canadian
pension funds, they didn't perform better than the Caisse in 2010. I
doubt anyone did.
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it's only right that those who toil as public servants are able to take advantage of early retirement with lifetime medical and inflation adjusted pensions, let the numb nuts in the private sector work till they drop to keep feeding the tax man who will ultimately back up the likes of OMERS, CALPERS etc
Life is good for a fifty something retired sanitary engineer sitting by the pool in some gated community outside of Orlando
Always knew there was a high rate of return on recycling material in our garbage bins. Like our retiree pension funds, they are reusable material. What the retirees spend is then good for the economy.
Leo, these results are all smoke and mirrors. You know that 10 - 13% return in an investment environment like that we just went through in 2010 sucks big time. There was massive government pumping of the equity market and massive government purchase of bonds driving bond values higher. Both these pension companies should have done far better than 10 - 13%. When the SHTF, these companies will be toast as they will not be able to manage the bad times any better than they managed the good.
A 10% return when inflation hits 6% isn't that good, to say it mildly. You know these companies already have their talking points prepared for the future when the market turns. I pity anyone invested with them. They won't know what hit them.