In 2011, OPTrust’s investment program achieved a 5.5% return for the Total Fund, outperforming the 3.9% return for our composite benchmark portfolio. While OPTrust’s return exceeded our market benchmark by 1.6%, the Fund fell short of our 6.5% funding target, reflecting the impact of continued economic uncertainty, the uneven pace of the global economic recovery, and sharp declines in global equity markets in the second half of the year.

Against this backdrop, OPTrust benefited from our long-term diversification strategy in 2011, as strong double-digit returns from our fixed income, real return bond, real estate, infrastructure and private equity portfolios offset losses from our Canadian and global equity portfolios of -7.3% and -9.1%, respectively.

Net investment income for 2011 was $578 million, compared to $1,530 million the year before, when the Plan returned 13.9%. The added value generated by active management of the Fund was 1.6% or $210 million in 2011.

Over 17 years of operation, OPTrust has achieved an average annual return of 8.5% since 1995, outperforming both the 7.4% average return for our composite benchmark and the Plan’s 7.25% funding target for the same period. The funding target is the rate of return the Plan is expected to achieve over the long term to pay for members’ and retirees’ pensions.

Diversification was critical to OPTrust’s total fund return of 5.5% in 2011. Over the year, double-digit returns from the Plan’s fixed income, real return bond, real estate, infrastructure and private equity portfolios helped offset losses of -7.3% and -9.1%, respectively, for our Canadian and global equity portfolios.

Calculating investment returns
OPTrust’s total fund and portfolio returns are calculated on a “time-weighted” basis, which neutralizes the effect of cash flows over the reporting period. All returns are calculated gross of investment management fees and operating costs.

The total fund return also reflects the impact of OPTrust’s policy of passively hedging 50% of the Plan’s exposure to foreign developed market currencies at the fund level. The hedging strategy is designed to reduce the impact (volatility) of short-term changes in the value of the Canadian dollar relative to other developed market currencies on the Fund’s annual returns. Over the long term, changes in foreign currency exchange rates are expected to have a neutral impact on the Plan’s returns.

Benchmarks Used to Measure Total Fund Performance

Asset Class	Benchmark
Canadian equity	S&P TSX Composite Index
Global equity	Weighted composite of: S&P 5001, MSCI EAFE1, MSCI EMF indexes
Private equity	Private equity composite 1,2
Real return bonds	OPTrust real return bond portfolio
Real estate	Custom IPD Index
Infrastructure	Consumer Price Index + 5%
Fixed income	Weighted composite of: DEX Long Bond, Custom Swap Benchmark (Long)
Cash & short term investments	DEX 30 Day T-Bill Index
Energy commodities	S&P/GSCI Energy Index 3

• ¹Benchmark returns for these indexes/portfolios incorporate a 50% currency hedge to reflect OPTrust's policy of passively hedging 50% of the Total Fund's exposure to developed market currencies.
• ² The private equity benchmark reflects each investment’s actual return up to December 2009. Thereafter, the benchmark is the approved custom private equity benchmark (public equity/LIBOR blend + spread).
• ³The benchmark returns for the commodities portfolio excludes the effect of the passive currency hedge, which is captured in the hedged global equity composite benchmark.

More information on OPTrust’s investment strategy and performance are available in our 2011 Annual Report.