OPTrust’s private markets program was launched in 2005 to build diversified private equity and infrastructure portfolios that will eventually account for 10% and 15% of the Plan’s assets, respectively.

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.

Private equity encompasses a wide range of investments, including leveraged buyouts (transactions used to purchase relatively mature companies, financed to a large degree by debt repaid through the cash flow of the acquired firm), growth capital and mezzanine financing (a debt-like structure often used to fund the expansion of existing companies).

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

• improved diversification and lower volatility of plan returns, resulting from the fact that 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 inflation sensitivity of infrastructure investments, 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.

In 2007, OPTrust marked year two of the Plan’s multi-year private markets investment pacing plan. Over the year, the team completed three new infrastructure investments and eight new private equity investments. Our private market holdings include six investments in North America and another six in Europe, accounting for 44% and 56% of the portfolio, respectively. Of these, seven are fund investments, representing 29% of the portfolio. Five direct and co-investments make up the remaining 71%.

At year-end, OPTrust’s private markets portfolios reached a net asset value of $466 million, or 3.4% of the total fund, with additional unfunded commitments totalling more than $340 million.

One of OPTrust’s more visible private market investments in 2007 was the acquisition of a TSX-listed income trust, Oceanex Income Fund. Oceanex is an Atlantic Canadian container shipping company operating primarily in Montreal, Halifax and Newfoundland. Our Private Markets Group identified this opportunity internally, found the right partners to help acquire and operate the company, and executed the transaction against a highly competitive landscape.