OPTrust’s private markets program was launched in 2006 to build diversified private equity and infrastructure portfolios. Under OPTrust’s long-term diversification strategy, each of these portfolios will each eventually account for 15% of the Plan’s assets (30% in total). At the end of 2010, OPTrust’s infrastructure and private equity portfolios had reached a net asset value of $648 million and $431 million, equal to 4.9% and 3.3% of the fund respectively.

In 2010, OPTrust’s infrastructure portfolio returned 22.7% compared to our infrastructure benchmark return of 7.5%. Our private equity holdings generated a return of 28.4%, matching the portfolio benchmark for the year.

Infrastructure and private equity
Infrastructure investments include regulated assets such as water, gas and electric utilities; transportation assets such as toll roads and airports; and long-term contracted assets like power-generating plants and renewable energy projects. Private equity encompasses a wide range of investments, including buyouts, venture capital, credit opportunities and special situations financing opportunities.

The expected benefits of investing in private equity and infrastructure include:

• improved diversification and lower volatility of plan returns, since private markets and public stocks and bonds do not necessarily move in the same direction at the same time
• higher risk-adjusted returns than public equities, due to the direct involvement of the Plan’s internal portfolio managers in structuring deals and in the ongoing management of the assets
• better matching with the Plan’s indexed pension liabilities due to the sensitivity of infrastructure returns to changing inflation rates, which results from the regulatory and contractual frameworks supporting these assets.

Private Markets Group
The program is managed by OPTrust’s Private Markets Group, an internal team of investment professionals with extensive international experience. Reflecting the program’s scope, the team is equipped to invest on a global basis in both asset classes and through various types of private market transactions, including fund investments, co-investments, secondary investments and direct investments.

Execution of the program is conducted out of the Private Markets Group’s offices in Toronto and London, UK.

Case Study: Partnerships for Renewables
In 2010, OPTrust announced an investment in Partnership for Renewables (PfR), an innovative joint venture in the United Kingdom. PfR funds and develops wind farms on public lands, helping the public sector access the economic and environmental benefits of renewable energy projects without diverting public resources away from frontline services.

PfR is one of several investments the Private Markets Group has made in renewable energy projects as part of our infrastructure program. Investments in these regulated assets support OPTrust’s Statement of Responsible Investing Principles (SRIP), both contributing to and benefiting from global efforts to reduce carbon emissions and other pollutants associated with many traditional sources of energy.

In Canada, OPTrust is investing in small-scale renewable energy developments, bringing clean power and local economic development opportunities to communities in Nova Scotia and Ontario.