2010 returns - alternative investments
OPTrust’s real estate strategy includes holding a variety of investments that provide diversity by property type, geographical location, manager and investment style. Investments are identified, screened, purchased and monitored on an ongoing basis by portfolio managers in our internal Real Estate Group, with the assistance of external investment managers.
Our Canadian portfolio consists of office, retail, industrial and multi-residential properties that are owned directly by the Plan. OPTrust has also invested in a number of Canadian and international pooled real estate funds.
The Plan’s real estate portfolio returned to strongly positive territory in 2010 with a return of 14.4% versus its benchmark of 7.4%. This result marks a sharp turn-around from the portfolio’s loss of 7.1% in 2009.
In 2010, OPTrust’s Board approved a new customized real estate benchmark based on the IPD (Investment Property Databank) Index. This change provides a more relevant market-based comparator for assessing the portfolio’s performance. Since the real estate program’s inception in April 2004, the portfolio has generated an average annual return of 8.6% versus its benchmark return of 8.3%.
Infrastructure & private equity
OPTrust's private markets program was launched in 2006 to build diversified private equity and infrastructure portfolios that will each eventually account for 15% of the Plan's total assets. In 2010, these portfolios reached a combined market value of $1,079 million at year-end, up from $863 million in 2009.
In 2010, both portfolios generated robust returns, reflecting the sharp rebound in the market values following the recession of 2008-2009. These returns are also a result of income and return of capital from individual investments, and value added through active management by OPTrust’s Private Markets Group.
Infrastructure investments returned 22.7% in 2010, compared with 14.5% in 2009 and well above the infrastructure benchmark return of 7.5% (CPI + 5%). Since the portfolio’s inception in 2006, OPTrust’s infrastructure investments have generated an average annual return of 12.8% compared to 6.9% for the portfolio benchmark.
The Plan’s private equity holdings generated a return of 28.4% for the year, compared with a loss of 3.1% the previous year. Since inception, the portfolio has returned essentially 0%, an excellent result given private equity investments are expected to follow a J-curve pattern with negative returns for the first several years, followed by significant gains in later years.