To meet our funding obligation, OPTrust has built an investment portfolio valued at $11 billion at the end of 2008. The Plan’s assets include Canadian and global equities, fixed income investments and growing real estate and private markets portfolios.

Diversification is a key element of our long-term investment strategy. By selecting an appropriate mix of asset types and investing in a range of markets and sectors, we aim to achieve a number of objectives, including:

• managing the Plan’s exposure to investment risk
• reducing the impact of poor returns from particular markets or asset classes in any given year, and
• maximizing our ability to achieve the Plan’s target return over time.

Diversification strategy
These objectives were the focus of two detailed asset-liability studies carried out by OPTrust within the past five years. The result was a multi-year diversification strategy approved by the Board of Trustees. The goal is to reduce the Fund’s total investment risk – and the volatility of our annual returns – by gradually reducing the Plan’s weighting to public equities, which currently have a policy benchmark weight of less than 50% but account for approximately 90% of the Fund’s overall risk.

In 2008, OPTrust made significant progress in implementing this strategy. Key milestones for the year included:

• funding more than $300 million in new real estate investments, bringing the net market value of the portfolio to $1.3 billion, or 11.9% of the Total Fund, at year-end
• completing new investments in infrastructure and private equity that increased the combined value of these portfolios to $687 million, or 6.3% of the Fund, up from $466 million (3.5% of the fund) at the end of 2007.

As a result, our allocation to real estate has now reached the Plan’s long-term target range of 8% to 14% of the Total Fund. When fully implemented, our diversification strategy will see the private equity and infrastructure portfolios increase 10% and 15% of the Plan’s assets, respectively.

In 2008, OPTrust’s real estate, infrastructure and private equity investments increased to 11.9%, 3.2% and 3.1% of the Fund, respectively, with corresponding reductions in the allocation to public equities and fixed income investments. In the fourth quarter of 2008, the Trustees approved a tactical reallocation of 10% of the Fund’s assets from public equity into short-term investments, reducing our exposure to the continued volatility of equity returns. * Categories include temporary cash balances.

Since the Plan’s inception in 1995, our Canadian equity and fixed income portfolios have generated solid average annual returns of 9.0% and 8.9%, respectively, bettering our portfolio benchmarks. Global equities have returned an average of 5.3%, compared to a 4.8% benchmark. Our newer real estate and infrastructure portfolios have generated strong positive returns since 2004 and 2006, respectively. Negative results for our private equity investments reflect the 2007 launch of the portfolio and “J-curve” return pattern typical of this asset type.