Bob Bertram, executive vice-president, investments, with the Ontario Teachers’ Pension Plan and BENEFITS CANADA’s Top 40 Money Managers Lifetime Achievement Award winner had just come from a meeting about retirement residences with veteran real estate investor, Paul Reichmann. While retirement residences might just be the next wave, Bertram has pioneered many of the strategies and asset classes that are now mainstream among Canadian pension funds. From swaps to risk budgeting to infrastructure, he has been there from the beginning.

Bertram’s own history began on a farm in Eston, Sask., where his family grew wheat, barley and flax. Those farm roots gave him a good grounding in managing money and running a small business. “You have to pay attention to costs. You’re on your own and you have to be innovative and selfreliant. It teaches you a lot of good lessons,” explains Bertram.

When Bertram left the farm and got a job at the phone company—Alberta Government Telephones(AGT)in Edmonton (now Telus)—he took that strong work ethic with him. A young finance professional paying into the company pension fund, he watched how his money was being invested. “I kept looking at the results for the pension fund and they weren’t doing very well,” he explains. So someone told him to do something about it: run for the pension board. “I did and I was elected,” he says. When election time came around again, he found himself without a seat on the board. Instead, he got a job. Bertram was now working full-time for the pension fund.

It was the 1970s and pension investment in Canada was pretty unsophisticated. The typical fund was invested mainly in bonds with a few of the edgier players dealing in a smattering of public equities. When Bertram started working for the AGT fund, however, he noticed that it was different from the rest: it had a small but effective real estate portfolio. “Here was a fund that was already innovative, doing real estate, buying their own,” Bertram says, explaining that the fund was actively developing major projects in Alberta. While the rest of the portfolio looked like most others—bonds with a bit of equity— Bertram was quick to realize that it was the real estate that was paying off. “It was a good lesson,” he says.

Based on what he saw in the real estate portion of the fund, he began to look at new ways to balance risks and returns, seeking ways to replicate the fund’s real estate successes. “We added private equity and mortgage portfolios as well as strip bonds,” he explains. “[Strip bonds] were non-traditional at the time for pension funds.” The fund also moved into financial futures—another non-traditional asset class for pensions to invest in. During this time, says Bertram, “I was basically doing alternatives.”

Alternative or not, Bertram attracted the attention of the largest pension fund in Canada—Teachers’. In 1990, they gave him a job and he moved to Toronto, bringing a wealth of experience as an innovator to a fund with an investment portfolio that was about as limited as you can get. “When I came to Teachers’ it had a portfolio of 100% fixed income,” he explains. “The liabilities were 100% in bonds and they were inflation- indexed, so they were very sensitive to inflation going up and down.” The challenge was to fix the fund’s asset mix so that it was a better match for its liabilities. There was a small catch, though—they weren’t allowed to sell the bonds because they were non-marketable and issued by the Ontario government.

It was quite a conundrum. To get around it, Bertram helped the fund turn to derivatives. “We first used futures,” he says. “We would collaterize a futures position with bond portfolios. But then the cash flow got so too large on the mark-to-market so we decided to use swaps.” Today, that might sound like a logical solution but back then it was unheard of. Pension funds weren’t allowed to use swaps. So Bertram led the fund to Ottawa. “We were the first to show up on [the Ministry of] Finance’s door to get a ruling,” he explains. For every trade, Teachers’ would go to the federal government to get the okay. That worked for a while, says Bertram, but after a few rulings, they just kept pushing ahead without them. No one stopped the fund and, hence, derivatives were born in the Canadian pension industry.

From there, it wasn’t a big leap to another major innovation—the creation of the synthetic market in Canada to get around the foreign content rule. “It became obvious to us that, when you crystallize a swap, it has zero book value,” Bertram explains. “So we discovered we could get all the foreign content exposure that we wanted. And we started using them not just to swap from fixed income to equity, but from fixed income to foreign equity.”

As Teachers’ began to move into new investment territory, Bertram also lead the way in developing a new way to budget risk. “Before we could do creative things, we needed to be able to add up the risks across the whole fund,” he explains. The advent of personal computers had made this a lot easier back in Bertram’s years at AGT. At Teachers’, he applied this knowledge to design a risk strategy that allowed his team to add up risks across the fund. “Now we have a process,” says Bertram. “It doesn’t matter what the asset is—we can assign a risk number to it. We can budget the numbers.”

Given the challenges facing pension funds today, it’s hard to imagine where the next opportunities will lie. Bertram’s not sure either—but he’s still on the hunt. “We constantly scour for opportunities here—but it’s almost like the last of the low-hanging fruit has been picked.” In his view, that was infrastructure—but even that has become a tough game to get into. “The gap closed so quickly,” he says.

These days, Bertram is eyeing the baby boom generation. “If you think about what’s driven the investment business in the last 30 years, it’s been the baby boom,” he says. “You have to think about what the baby boom is going to do next.” And, as most people in the pension business well know, that means retiring. From vacation properties to retirement residences, Bertram believes that demand is going to flow where the boomers go—and that he says will create tomorrow’s excess returns.

For today, however, the veteran pension investor can look back on a full career that many say has changed the way pension investment is done in Canada. He’s still modest and still connected to his prairie roots—a global money manager who can just as easily tell stories of using tractor parts to fix a diesel turbine in the middle of a field. It’s a truly Canadian approach to innovation and one that he’s carried through the pension industry across the country.

Caroline Cakebread is the editor of Canadian Investment Review.


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