Toronto (April 22, 2009) – The OPSEU Pension Trust (OPTrust) has reported an investment return of -16.2% for 2008, compared to -16.8% for its composite benchmark. As a result, the OPSEU Pension Plan ended the year with net assets of $11 billion, down from $13.6 billion the previous year.
Over the long term, OPTrust has achieved an average gross annual return of 8.1% since the Plan’s inception in 1995. This performance exceeds both the Plan’s 7.4% average return needed to pay for members’ and retirees’ pensions and its 7.1% benchmark return for the same period.
“Like most major pension plans, we experienced significant losses in 2008, as the global financial crisis produced a steep drop in equity and credit markets,” said Tony Ross, Chair of OPTrust’s Board of Trustees.
“Fortunately our sharply negative returns from public equities were partly offset by positive returns from our sizable fixed income portfolio and strong performance from our growing real estate and infrastructure portfolios,” Ross said.
OPTrust uses an actuarial smoothing adjustment to spread the impact of each year’s investment gains and losses over several years. As a result, negative returns for 2008 left the Plan with deferred losses of $2.4 billion at year-end, which will be recognized over the next four years.
OPTrust therefore expects the Plan’s next funding valuation to identify a deficit. The Trust must file its next funding valuation with the provincial regulator no later than September 2011.
At the same time, the Plan ended 2008 with special rate stabilization funds totalling $938 million. These reserve funds have been set aside from the Plan’s past investment gains by OPSEU and the Government of Ontario, in their role as plan sponsors.
The stabilization funds can be used by OPTrust’s sponsors to help offset the impact of the Plan’s expected funding deficit on members’ and employers’ future contribution rates.
“The rate stabilization funds provide our sponsors with an important additional resource to draw on as we manage our deferred losses, while meeting our long-term funding requirements,” Ross said.
Over the year, OPTrust’s Canadian equity portfolio lost 30.1% compared to a benchmark return of -34.0%. The Plan’s global equities returned -37.4% in Canadian dollar terms versus -35.9% for its benchmark, including losses resulting from the partial hedging of the Plan’s foreign currency exposure.
In contrast, OPTrust’s fixed income investments, which account for more than a third of the Fund, generated a positive return of 7.5% versus 7.8 % for the portfolio benchmark. The Plan’s real estate and infrastructure portfolios posted returns of 9.4% and 12.1%, exceeding their benchmarks of 7.5% and 8.7% respectively.
OPTrust has been implementing a long-term diversification strategy for the past several years, gradually reducing the Fund’s weighting towards public equities while increasing its allocation to alternative asset classes including real estate, infrastructure and private equity.
At year-end these three portfolios accounted for 11.9%, 3.2% and 3.1% of fund assets respectively. OPTrust’s infrastructure and private equity investments will eventually grow to 15% and 10% of the Fund.
In addition to this long-term strategy, OPTrust made a tactical decision in the fall of 2008 to reduce the Fund’s exposure to equity market volatility. This was achieved by moving approximately $1 billion in assets, equal to 10% of the Total Fund, out of public equities and into a short-term money market portfolio.
Since the onset of the credit crisis, the Plan has also benefited from OPTrust’s conservative approach to credit risk. As a result, the Fund had no direct investment in toxic sub-prime mortgage assets and had negligible exposure to non-bank asset-backed commercial paper.
“Our investment losses, the global recession and ongoing market instability will continue to present significant challenges,” Ross said. “We will therefore closely monitor the Fund’s risk exposure and investment performance over the coming period, and identify options for managing the funding implications of our deferred losses.
“At the same time, as a long-term investor, we expect that investment returns may vary considerably from year to year. By moving forward with our diversification strategy, we are positioning the Plan to generate the stable long-term returns needed to fund our members’ and retirees’ pensions today and decades into the future.”
Detailed information on OPTrust’s investment and financial results for 2008 is provided in its annual report. A shorter highlights report for OPTrust members and pensioners is also available
With $11 billion in invested assets, the OPSEU Pension Trust (OPTrust) manages one of Canada's largest pension funds and administers the OPSEU Pension Plan. OPTrust serves more than 82,000 members and retirees, including employees of the Government of Ontario and other agencies represented by the Ontario Public Service Employees Union (OPSEU).
OPTrust was established in 1995 to invest and manage the Plan’s assets, provide the finest service to members and pensioners, and ensure the long-term security of their pension benefits. The OPSEU Pension Plan is jointly sponsored by OPSEU and the Government of Ontario.