OMERS, one of Canada’s largest pension plans, today announced its 2012 financial results. OMERS net assets grew to $60.8 billion, rising by $5.7 billion in 2012 and by over $17 billion since the 2008 global credit crisis. OMERS total Plan investment return of 10% was driven by strong performance in its private market portfolio and solid public market performance in line with expectations and current market conditions.
“OMERS had a strong year in 2012. The $5.7 billion increase in our net assets demonstrates the strength and robustness of OMERS business model with the capacity to generate growing investment cash yields and more than ample liquidity to withstand market shocks under stressed financial conditions,” said Michael Nobrega, OMERS President and CEO.
In 2003 OMERS adopted its current strategic plan which included increasing its allocation to private markets. OMERS ended 2012 with 60% of its assets in the public markets and 40% in private market assets, compared with 82% public and 18% private before the new strategy was implemented nine years ago. OMERS goal is to achieve a mix of approximately 53% public and 47% private market investments.
A second part of the current strategic plan is to directly own and actively manage investments rather than retaining external fund managers. OMERS ended the year with 88% of the portfolio now managed in-house, up from 74% five years ago. The long-term goal is to reach 95% of the portfolio managed internally.
OMERS private market portfolio had a 13.8% investment return – with returns of 19.2% (OMERS Private Equity), 16.9% (Oxford Properties), 12.7% (Borealis Infrastructure) and negative 10.1% (OMERS Strategic Investments). OMERS Strategic Investments, which represents less than two and a half per cent of OMERS net investments, has its principal assets in Alberta’s oil and gas sector. The year-end valuation of these assets was negatively impacted as oil and gas prices fell to their lowest levels in five years. OMERS Capital Markets, which manages the public market portfolio including public equities, fixed income and debt investments, generated a 7.5% return.
“As a pension plan we are focused on our ability to pay pensions to our members over the long term in spite of factors such as the increasing average age of Plan members, low interest rates and volatility in the public equity markets. Our strategy is continuing to evolve to provide us with a fortress-like balance sheet that enables the growth of our assets while maintaining the necessary liquidity to withstand market disruptions,” said Mr. Nobrega.
At the end of 2012 OMERS had more than $60 billion in net assets and collected $3.2 billion in contributions from its members and paid out $2.7 billion in benefits, demonstrating its ability to meet its pension obligation in the short and medium term. Annually the Plan makes a projection regarding its ability to pay pensions over the long-term. At the end of 2012, the total pension entitlements earned to date by all Plan members exceeded OMERS actuarial net assets by $10 billion, resulting in a funding deficit. This projected, long-term deficit is mainly the result of increasing liabilities and the impact of investment losses incurred as a result of the 2008 global financial crisis.
“This deficit is based on a long-term projection going out several decades and in no way reflects our ability to pay pensions in the short term. Solid investment returns which have averaged 8.9% per year in the four years since the financial crisis, and 8.2% over the past 10 years, combined with contribution increases, are already having a positive impact on reducing the deficit. Sustained returns at this level could bring the Plan back to fully funded status earlier than anticipated,” said Patrick Crowley, OMERS Chief Financial Officer.
© 2013 PEPD • Private Equity’s Leading News Magazine • 2-25-13