Canada Pension Fund Cut Stocks, Added Infrastructure

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(Bloomberg) -- Ontario Municipal Employees Retirement System, one of Canada’s largest pension funds, cut its stock holdings last year as its returns climbed and added to its infrastructure bets.

The firm lowered its share of stocks to 29% of its portfolio in 2019, from 33% the year before, according to a statement released Monday. It generated returns from its public equity investments of about 20.3% from the prior year.

“All asset classes generated positive returns, led by public equities,” Omers Chief Executive Officer Michael Latimer said in the statement. “Over the past five years, we have earned C$9.8 billion ($7.4 billion) of net investment income over the amount required to fund our pension obligations.”

Omers returned 11.9% on its investments last year, pushing assets to C$109 billion. It also increased its exposure to infrastructure slightly, while decreasing its real estate and private equity holdings moderately.

The fund may have reduced its investments in stocks in the nick of time as markets globally were roiled as authorities struggled to keep the coronavirus from spreading more widely outside of China. Finance chiefs and central bankers from the largest economies warned this weekend that they saw the virus bringing downside risks to global growth.

Other notable numbers:

  • Total public investments returned 16.4% in 2019 -- its largest returns last year -- after losing 4.6% the year before.
  • The fund reduced its government bonds and inflation-linked bond holdings by half during the year to 3% and 2% respectively.
  • It cut its public credit exposure to 17% from 19% a year ago.
  • The fixed income portfolio returned 6.7% in 2019 versus 1.8% the year before.

Omers is not “overly confident nor complacent” going into this year, said Blake Hutcheson, who takes over as CEO of the fund in June when Latimer retires. The pension fund trimmed positions across the board to cut its cash and economic leverage to virtually zero, he said Monday in a roundtable discussion with reporters in Toronto.

Assets called “short-term instruments” in the fund’s 2019 results went to zero from negative 13% in 2018, according to its statement.

“Our portfolio is not just very well diversified but it also got a very comfortable level of dry powder, which is a good place to be given the way markets are,” Hutcheson said. “It’s just been a prudent strategy to fortify our balance sheet going into this period.”

While OMERS managed to beat its 7.5% return benchmark, results trailed the average 14% increase of Canadian defined pension plans, as estimated by RBC Investor Services. Last week, Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund, said it returned 10% on its investments last year. Its assets under management grew to C$340.1 billion from C$309.5 billion a year ago.

Founded in 1962, Omers oversees the retirement savings for nearly 500,000 municipal employees, school board, emergency services and local agency members across the province of Ontario. It plans to grow assets to C$200 billion over the next seven to 10 years, Hutcheson said.

©2020 Bloomberg L.P.

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