OPTrust announces 13.6% investment return for 2009

posting date Posted: May 3, 2010

Toronto (May 3, 2010) –The OPSEU Pension Trust (OPTrust) has reported a 2009 investment return of 13.6% for the OPSEU Pension Plan, exceeding the Plan’s 6.75% funding target return for the year.

The Plan’s net investment income for 2009 totalled $1.3 billion. As a result, net assets increased to $12 billion at year-end, up by $1 billion from 2008. The Plan’s strong growth in 2009 contrasts with its investment loss of 16.2%, or $2.4 billion, in 2008 as a result of the global financial crisis.

Over 15 years of operation, OPTrust has achieved an average annual return of 8.4% since 1995, outperforming both its 7.5% average benchmark return and the Plan’s 7.3% 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.

In 2009, the Plan benefited from a strong rebound in public equity markets, achieving returns of 34.8% and 31.6% for its Canadian and global equity portfolios. The Plan’s real return bonds and infrastructure investments also performed well, generating returns of 13.1% and 14.5%, respectively.

These gains were partly offset by losses of 7.1% for real estate and 3.1% for private equity, which reflected the impact of the global recession on these asset classes in 2009. The Plan’s fixed income portfolio (excluding real return bonds) returned 1.9% for the year.

“We were pleased to see Canadian and international stock markets recover part of the ground they lost in 2009,” said Tony Ross, chair of OPTrust’s Board of Trustees. “Nonetheless, the continuing volatility of public equity returns remains a significant concern for both the short and long term.”

“As a result, the Fund remained underweighted to public equity through 2009, continuing a tactical reallocation that we made in late 2008 to reduce the volatility of the Plan’s returns,” Ross said. “At the same time, the Board approved a series of adjustments to the Plan’s long-term asset mix in 2009, which will continue our diversification away from public equity over the next several years.”

The Plan’s revised asset mix targets are based on the results of a major asset/liability study completed by OPTrust in 2009. The adjustments, which will be implemented over several years, include:

  • continuing a gradual reduction in the Plan’s exposure to volatile public equities, which will eventually make up 25% of the total fund
  • increasing both its real estate and private equity allocations to 15% each
  • continuing to implement OPTrust’s 15% target for infrastructure
  • adding a 5% allocation to energy commodities
  • maintaining a substantial 20% allocation to government and corporate bonds.

Taken together, these changes are expected to increase OPTrust’s ability to meet or exceed the Plan’s funding target return over the long-term, while reducing its overall level of investment risk.

In 2009, OPTrust worked with the Plan’s sponsors – OPSEU and the Government of Ontario – to implement a proactive strategy for managing the funding impact of the Plan’s 2008 investment loss. Key elements of this strategy included:

  • capping the amount of the Plan’s 2008 investment losses that were deferred – or “smoothed” – for recognition between 2009 and 2012
  • filing the Plan’s 2008 funding valuation with Ontario’s pension regulator to allow the sponsors to start addressing the $1.8 billion deficit
  • reducing the deficit by $1.2 billion by implementing a gradual 3% increase in contribution rates recommended by OPTrust and approved by the Plan’s sponsors
  • phasing in the contribution increase over three years starting in 2010, to moderate the impact on members’ take-home pay and employers’ payroll costs
  • drawing on the Plan’s $820 million rate stabilization funds to pay down the remaining $606 million deficit over the next 15 years.

This prudent approach will allow OPTrust and its members and sponsors to meet the Plan’s long-term funding needs while maintaining the value of members’ future pension benefits.

For more information:

Myles Magner
Communications Advisor