Portfolio Strategies

Our Total Fund strategy is designed around four strategic portfolios, each of which serves a specific purpose in helping us to deliver on our MDI objectives. These portfolios are: the Liability Hedging Portfolio (LHP), the Return Seeking Portfolio (RSP), the Risk Mitigation Portfolio (RMP) and the Funding Portfolio (FP).

 

Our Total Fund strategy is designed around four strategic portfolios, each of which serves a specific purpose in helping us to deliver on our MDI objectives. These portfolios are: the Liability Hedging Portfolio (LHP), the Return Seeking Portfolio (RSP), the Risk Mitigation Portfolio (RMP) and the Funding Portfolio (FP).

Liability Hedging Portfolio

The LHP is designed to help manage funded status volatility by mitigating risk associated with changes to the discount rate of the Plan’s pension liabilities. We do this by hedging a portion of the interest rate sensitivity of the Plan’s liabilities. Our LHP is composed of long-term Canadian government bonds. It also serves as the main source of liquidity for the Plan.

Return Seeking Portfolio

To keep our pension promise to our members, we must earn enough return to keep the Plan fully funded over the long term. This means investing in a Return Seeking Portfolio, which is a diversified portfolio of assets that we expect will earn a risk premium over time. Assets in this portfolio include private and public equity, credit, multi-strategy investments, real estate, and infrastructure.

  • Private Equity: Private equity is expected to generate higher returns than public equity over the long term while providing a smoother volatility profile. We invest directly into private companies, typically alongside partners and indirectly, through private equity funds.
  • Public Equity: Our public equity exposure is designed to complement our private equity strategy and generate returns using liquid market instruments. We implement our public equity strategy through internally managed cash market and derivative positions, and external managers. Our public equity portfolio is diversified across developed and emerging markets.
  • Credit: Credit investments provide attractive risk-adjusted returns and can deliver stable cash flows for the Total Fund. Our credit exposure is implemented using internally managed cash market and derivative positions, and external managers.
  • Multi-Strategy Investments: We invest in a mix of customized, liquid alternative strategies to access a broader and more diversified set of risk premia and value-add opportunities. These investments are less correlated with traditional market returns and make our Total Fund portfolio more resilient to different economic and market environments.
  • Real Estate: The real estate portfolio provides attractive risk-adjusted returns and is an important diversifier for the Total Fund. It lowers funded status volatility and provides predictable income to fulfill our pension obligations.
  • Infrastructure: Infrastructure investments add diversification to the Total Fund and act as a partial inflation hedge. They also provide cash flow and the potential for return enhancement through long-term capital growth.
Risk Mitigation Portfolio

This portfolio provides an added layer of diversification for the Total Fund and can mitigate drawdowns in certain market-stress scenarios. We hold US Treasuries, safe-haven currencies, gold and trend-following strategies in this portfolio, as these assets typically perform well in market stress environments.

Funding Portfolio

This portfolio represents the net funding for the Total Fund. We use modest leverage in the portfolio, which allows us to access a broader and more diversified set of strategies. This helps us to achieve a better overall risk-return profile for the Total Fund. Our primary source of funding is bond repurchase agreements; we also obtain funding through the use of derivative instruments, for example equity futures.

 

OPTrust Private Markets

Visit the Private Markets Group

OPTrust's investments in private equity and infrastructure are managed by the Private Markets Group (PMG), an internal team established in 2005

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