The Healthcare of Ontario Pension Plan posted a 10.88 per cent return for 2017, up very slightly on its 10.4 per cent return in 2016 and exceeding its portfolio benchmark by 2.99 per cent or $2 billion.
According to the pension fund’s annual results, it also maintained its funded status at 122 per cent, its investment income grew from $6.6 billion in 2016 to $7.6 billion in 2017, and its net assets rose from $70.4 billion to $77.8 billion.
However, looking ahead through the lens of current market conditions, very rich valuations make this a problematic time to add to HOOPP’s portfolios, says Jim Keohane, president and chief executive officer at HOOPP. ”You think about an organization like ours, we’re very long term. If you have a 25-year-old worker coming into the plan today, we might be paying them benefits when they’re 95. So the best time for us to buy assets is when they’re on sale, which is not today.”
This environment is cause for caution, he notes. “I think it’s a good time to be patient and wait for better opportunities,” he says.
HOOPP holds its investments across two portfolios within its liability-driven investing model: a liability hedge portfolio and a return-seeking portfolio. In 2017, the former accounted for about 48 per cent of the pension fund’s investment income.
By asset class, real return bond returns were essentially flat for the fund, while nominal bonds returned 10.5 per cent. Real estate bolstered returns, achieving an 11.9 per cent currency hedged return. Within the return-seeking portfolio, which provided 52 per cent of the fund’s income, public equities returned 14.8 per cent and private equities returned 19.6 per cent on a currency hedged basis.
“We had strong returns across the board,” says Keohane. “Probably the standout was private equity, which had very high returns last year, but public equities also did very well.”
Keohane also expects to continue to see strong growth in HOOPP’s membership. “That’s really a reflection of the continued growth in the health-care sector,” he says, noting that the baby boomer generation is coming into their peak use of the health-care system.