In 2012, OPTrust's investment program achieved a 10.1% return for the Total Fund, outperforming both the 7.2% return for our composite benchmark portfolio and our 6.5% funding target return for the year.

This strong return reflected the sharp recovery of global public equity markets in the second half of 2012. At the same time, OPTrust benefited from our long-term diversification strategy and strong double-digit returns in our real estate, infrastructure and private equity portfolios, which offset returns of 3.4% and 3.0% from our fixed income and real return bond portfolios, respectively, and a loss of -3.8% for our energy commodities portfolio.

Net investment income for 2012 was $1,237 million, compared to $578 million the year before, when the Plan returned 5.5%. The added value generated by active management of the Fund was 2.9% or $400 million in 2012.

Over OPTrust's 18 years of operation, the Plan's investment portfolio has realized an average gross annual return of 8.6%, exceeding our 7.2% average funding target return 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 10.1% in 2012. Over the year, double-digit returns from the Plan's global equity, real estate, infrastructure and private equity portfolios helped offset lower returns from fixed income, real return bonds and a loss of -3.8% from our energy commodities portfolio.

Calculating investment returns
OPTrust's total fund 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 composite1,2
Real return bonds	OPTrust real return bond portfolio
Real estate	Custom IPD Index
Infrastructure	Consumer Price Index + 5%
Fixed income	Weighted composite of: DEX Universe Overall, Custom Swap Benchmark (Mid)
Cash & short term investments	DEX 30 Day T-Bill Index
Energy commodities	S&P/GSCI Energy Index1

• 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..
• ²The 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).

More information on OPTrust's investment strategy and performance are available in our 2012 Annual Report.