4. Investments
The following schedule summarizes the fair value and average cost of the Plan’s investments before allocating the market exposure related to derivative financial instruments to the asset classes to which they relate.
| 2010 | 2009 | ||||||||||||||
| As at December 31 ($ millions) |
Fair Value |
Cost | % of Assets | Fair Value |
Cost | % of Assets | |||||||||
| Fixed income | |||||||||||||||
| Cash | $ | 197 | $ | 197 | 1% | $ | 89 | $ | 90 | 1% | |||||
| Short-term investments | 1,206 | 1,215 | 9% | 2,060 | 2,072 | 17% | |||||||||
| Government and corporate bonds | |||||||||||||||
| Canadian | 1,422 | 1,328 | 11% | 1,157 | 1,134 | 10% | |||||||||
| Foreign | – | – | 0% | 21 | 23 | 0% | |||||||||
| Real return bonds* | 1,280 | 990 | 10% | 1,179 | 990 | 10% | |||||||||
| Government of Ontario debentures | 860 | 718 | 7% | 1,064 | 865 | 9% | |||||||||
| 4,965 | 4,448 | 38% | 5,570 | 5,174 | 47% | ||||||||||
| Public equity | |||||||||||||||
| Canadian | 2,723 | 2,167 | 20% | 2,408 | 2,082 | 20% | |||||||||
| Foreign | 3,008 | 2,589 | 23% | 2,643 | 2,405 | 22% | |||||||||
| Foreign pooled equity linked investments | 170 | 156 | 1% | 156 | 153 | 1% | |||||||||
| 5,901 | 4,912 | 44% | 5,207 | 4,640 | 43% | ||||||||||
| Real estate | 1,780 | 1,838 | 13% | 1,582 | 1,717 | 13% | |||||||||
| Private markets | 1,079 | 1,072 | 8% | 862 | 935 | 7% | |||||||||
| Investment-related assets | |||||||||||||||
| Accrued income | 25 | 25 | 0% | 60 | 60 | 0% | |||||||||
| Due from brokers | 3 | 3 | 0% | 6 | 6 | 0% | |||||||||
| Other real estate and private market receivables | 11 | 11 | 0% | – | – | 0% | |||||||||
| Unrealized gains and amounts receivable on derivative contracts |
114 | 1 | 1% | 65 | – | 1% | |||||||||
| 153 | 40 | 1% | 131 | 66 | 1% | ||||||||||
| INVESTMENT ASSETS | $ | 13,878 | $ | 12,310 | 104% | $ | 13,352 | $ | 12,532 | 111% | |||||
| Investment-related liabilities | |||||||||||||||
| Due to brokers | (1) | (1) | 0% | (13) | (13) | 0% | |||||||||
| Mortgages related to real estate | (361) | (348) | (3%) | (332) | (332) | (3%) | |||||||||
| Other liabilities | (19) | (19) | 0% | (17) | (17) | 0% | |||||||||
| Unrealized losses and amounts payable on derivative contracts |
(13) | – | (0%) | (16) | - | 0% | |||||||||
| Obligation under securities lending agreements | (156) | (156) | (1%) | (947) | (947) | (8%) | |||||||||
| (550) | (524) | (4%) | (1,325) | (1,304) | (11%) | ||||||||||
| NET INVESTMENTS | $ | 13,328 | $ | 11,786 | 100% | $ | 12,027 | $ | 11,228 | 100% | |||||
* There were no foreign real return bonds for the years ended December 31, 2010 and 2009.
Net assets by portfolio are:
| As at December 31 ($ millions) | Securities Lending | Fixed Income | Public Equity | Real Estate | Private Markets | Commodities | Total | ||||||||||||||
| 2010 | |||||||||||||||||||||
| Cash and short-term investments | $ | 151 | $ | 531 | $ | 324 | $ | 8 | $ | - | $ | 389 | $ | 1,403 | |||||||
| Other investment assets | - | 3,562 | 5,901 | 1,780 | 1,079 | - | 12,322 | ||||||||||||||
| Investment-related assets | - | 65 | 77 | 10 | 1 | - | 153 | ||||||||||||||
| Investment related liabilities | (156) | - | (14) | (379) | (1) | - | (550) | ||||||||||||||
| NET INVESTMENTS | $ | (5) | $ | 4,158 | $ | 6,288 | $ | 1,419 | $ | 1,079 | $ | 389 | $ | 13,328 | |||||||
| 2009 | |||||||||||||||||||||
| Cash and short-term investments | $ | 938 | $ | 1,097 | $ | 100 | $ | 14 | $ | - | $ | - | $ | 2,149 | |||||||
| Other investment assets | - | 3,421 | 5,207 | 1,582 | 862 | - | 11,072 | ||||||||||||||
| Investment-related assets | - | 37 | 60 | 33 | 1 | - | 131 | ||||||||||||||
| Investment related liabilities | (947) | (6) | (23) | (349) | - | - | (1,325) | ||||||||||||||
| NET INVESTMENTS | $ | (9) | $ | 4,549 | $ | 5,344 | $ | 1,280 | $ | 863 | $ | - | 12,027 | ||||||||
a. Fair Value Hierarchy
The OPTrust's financial instruments are categorized within the fair value hierarchy as described in Note 2 as follows:
| 2010 | ||||
| As at December 31 ($ millions) | Level 1 | Level 2 | Level 3 | Total |
| Fixed income | ||||
| Cash | 197 | - | - | 197 |
| Short-term investments | 33 | 1,173 | - | 1,206 |
| Government and corporate bonds | - | 1,422 | - | 1,422 |
| Real return bonds | - | 1,280 | - | 1,280 |
| Government of Ontario debentures | - | 860 | - | 860 |
| Public equity | 5,729 | 2 | - | 5,731 |
| Foreign pooled equity linked investments | 170 | - | - | 170 |
| Real estate | - | 88 | 1,692 | 1,780 |
| Private markets | - | - | 1,079 | 1,079 |
| Investment related assets | 58 | 95 | - | 153 |
| Investment related liabilities | (53) | (497) | - | (550) |
| NET INVESTMENTS | 6,134 | 4,423 | 2,771 | 13,328 |
There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.
| 2009 | ||||
| As at December 31 ($ millions) | Level 1 | Level 2 | Level 3 | Total |
| Fixed income | ||||
| Cash | 89 | - | - | 89 |
| Short-term investments | 961 | 1,099 | - | 2,060 |
| Government and corporate bonds | - | 1,178 | - | 1,178 |
| Real return bonds | - | 1,179 | - | 1,179 |
| Government of Ontario debentures | - | 1,064 | - | 1,064 |
| Public equity | 5,049 | 2 | - | 5,051 |
| Foreign pooled equity linked investments | 156 | - | - | 156 |
| Real estate | - | 65 | 1,517 | 1,582 |
| Private markets | - | - | 862 | 862 |
| Investment related assets | 66 | 65 | - | 131 |
| Investment related liabilities | (978) | (347) | - | (1,325) |
| NET INVESTMENTS | 5,343 | 4,305 | 2,379 | 12,027 |
The following is a reconciliation of Level 3 fair value measurements for the years ended December 31, 2010 and 2009.
| 2010 | ||||||||
| As at December 31 ($ millions) | Real Estate | Private Markets | Total | |||||
| Balance, beginning of year | $ | 1,517 | $ | 862 | $ | 2,379 | ||
| Earned Income | 48 | 83 | 131 | |||||
| Realized (losses) | (2) | (5) | (7) | |||||
| Unrealized gains | 78 | 77 | 155 | |||||
| Purchases, sales and settlements, net | 51 | 62 | 113 | |||||
| BALANCE, END OF YEAR | $ | 1,692 | $ | 1,079 | $ | 2,771 | ||
| 2009 | ||||||||
| As at December 31 ($ millions) | Real Estate | Private Markets | Total | |||||
| Balance, beginning of year | $ | 1,481 | $ | 686 | $ | 2,167 | ||
| Earned Income | 52 | 39 | 91 | |||||
| Realized gains (losses) | 9 | (1) | 8 | |||||
| Unrealized losses | (208) | (45) | (253) | |||||
| Purchases, sales and settlements, net | 183 | 183 | 366 | |||||
| BALANCE, END OF YEAR | $ | 1,517 | $ | 862 | $ | 2,379 | ||
There were no transfers into or (out) of Level 3 in 2009 or 2010.
Sensitivity to changes in assumptions
For co-investments or fund investments where OPTrust does not have the ability to look through to the underlying investments, sensitivity information is not available. For direct investments in real estate and private markets the sensitivity of assumptions impacting fair value as follows:
| As at December 31 ($ millions) | Key factor | Fair value | +0.25% | -0.25% | ||
| Real estate | Discount or capitalization rate | 992 | (33) | 35 | ||
| Private markets | Discount rate | 459 | (12) | 12 | ||
| Mortgages related to real estate | Interest rate | 362 | (3) | 3 |
b. Significant Investments
At December 31, the Fund held the following investments, each having a fair value or cost exceeding one per cent of the fair value or cost of net investment assets.
| 2010 | 2009 | |||||||||||||||
| As at December 31 ($ millions) | Number of investments | Fair Value | Cost | Number of investments | Fair Value | Cost | ||||||||||
| Fixed income | 8 | $ | 2,493 | $ | 2,062 | 7 | $ | 3,067 | $ | 2,701 | ||||||
| Public equity | 1 | 170 | 156 | 3 | 414 | 339 | ||||||||||
| Private markets | 3 | 456 | 469 | 1 | 152 | 227 | ||||||||||
| The investments where the individual issue has a cost or fair value exceeding one per cent of the cost or fair value of net investment assets were comprised of one or more holdings of the following: | Fixed Income | Province of Ontario, Government of Canada and Government of the United States |
| Public equity | State Street S&P - Common Trust Fund | |
| Private markets | Kemble Water Holdings Limited, Porterbrook Leasing Company and Oceanex Inc. |