With invested assets of $16 billion, OPTrust manages one of Canada’s largest pension funds.
Our investment mandate focuses on achieving the investment returns needed to fund members’ and retirees’ pensions over the long term. To accomplish this we build an asset portfolio that will achieve our funding target return over a long time horizon, while avoiding substantial negative returns in the short term.
OPTrust’s asset mix policy, which defines the asset classes we invest in and their respective allocations, reflects our funding obligation. It also represents the starting point for determining both our investment strategy and the level of investment risk we expect to undertake to reach our objectives.
Funding target return
In 2013, we expected the pension fund to achieve a real average annual return of 4.0% after inflation and investment expenses. Factoring in the Plan’s 2.25% inflation assumption for 2013, our nominal long-term target return for funding purposes was 6.25% for the year. (In early 2014, OPTrust reduced its funding target return to 3.9% after inflation, lowering the Plan’s nominal funding target return to 6.15% starting in 2014.)
Over OPTrust’s 19 years of operation, the Plan’s investment portfolio has realized an average annual return of 8.3%, net of all investment management expenses, exceeding our 7.2% average funding target return for the same period.
We also expect the Plan’s investment results to vary from year to year as market conditions change. So, we compare OPTrust’s total fund return to the performance of a composite “policy benchmark portfolio” designed to mirror the Plan’s allocation to various asset classes.
For most asset types, the benchmark portfolio is based on widely recognized indexes; for alternative investments, the benchmark reflects a custom index or a proxy for the portfolio’s expected long-term return. As a result, our composite benchmark return provides a useful point of reference for measuring the added value generated by OPTrust’s active management of the Fund.
Total fund performance*
In 2013, OPTrust’s investments achieved an 11.7% total fund return, net of external management fees, outperforming the 8.7% return for our composite benchmark portfolio.
The strong performance was the result of another very solid year for equity markets. At the same time, OPTrust benefited from correct tactical positioning and our long-term diversification strategy, which produced robust double-digit net returns in our public equity, real estate, infrastructure, private equity and energy commodity portfolios. These helped offset negative net returns from our fixed income portfolios.
Net investment income for 2013 was $1.6 billion, compared to $1.2 billion in 2012 when the Plan returned 9.6%, net of external management fees. The added value generated by active management of the Fund was 3.0% or $435 million in 2013.
* More information on how OPTrust calculates the Plan’s investment returns.
More information on OPTrust’s investment strategy and performance is available in our 2013 Annual Report.
More information on OPTrust's investment policies is also available in ourStatement of Investment Policies and Procedures