OPTrust introduced its member-driven investing strategy two years ago – as a mature public sector plan with 90,000 members, the move has helped put the focus on funded status rather than returns as a true measure of the plan’s health.

“The biggest change at OPTrust has been a shift from a 100% focus on value add to a 100% focus on pension certainty,” explains James Davis, chief investment officer at OPTrust, during a one-on-one conversation. “That’s not to say getting great rates of return isn’t important, but it needs to be balanced with risk. Taking on too much risk can lead to benefits reduction in the future.”

In this new “pension management” mandate, the only metric that matters is funded status, in alignment with membership’s desire for pension certainty. That means dealing with two challenges. First, OPTrust is a mature plan, which means it can’t bear the same level of risk as a newer plan.

Also, OPTrust is operating in a difficult investment environment, says Davis: “Low rates have pushed everyone out of the risk curve and returns are front-loaded – they will be much lower in the future than what we’ve become accustomed to in the past few decades.”

OPTrust’s portfolio is also heavily weighted in illiquid alternative assets and, says Davis, investors are concerned about valuations.

Too many people, however, underestimate illiquidity: “People think they’re earning an illiquidity premium – I am not so sure that’s still true,” he says. “OPTrust has had a lot of success in this space, and opportunities to create value can more than offset a shrinking illiquidity premium. Pension funds can use these assets to smooth out returns over  the long-term – and we are long-term investors,” he explains, adding “we still have to file as a fully funded pension plan every three years. So we have to stay focused on the amount of risk we take.”