The Healthcare of Ontario Pension Plan reported a strong 2019, posting a 17.14 per cent return for the year and hitting a funded status of 119 per cent on a smoothed basis.
The fund outperformed its benchmark by 2.08 per cent — or just over $1.65 million — and far surpassed 2018’s return of 2.2 per cent. The HOOPP’s net assets reached $94.1 billion, a significant boost on the $79 billion it had under management at the end of 2018.
Retired members also saw their pension benefits increase by two per cent on April 1, 2019, which the HOOPP said was the highest level of inflation protection offered by the plan to date.
According to Jim Keohane, outgoing president and chief executive officer, the plan’s results and its liability driven investment strategy have positioned the plan well to weather the current volatility in the market, caused by the economic impacts of the coronavirus pandemic. Today, the plan remains fully funded even after weeks of market turmoil.
“Because we had a strong year last year, it left us in a pretty strong position going into this decline,” he says. “Our members’ pensions are well-protected and there’s no concern about our ability to meet those obligations.”
The fund also reduced its exposure to public equities in December, adds Keohane. “It’s not like we were expecting this to happen, but we thought equities overall were pretty highly valued.”
The fund’s significant bond portfolio has helped cushion the blow of the equity market and, with valuations suddenly lower for many assets, he says the HOOPP sees some good opportunities in equities and beyond. “The fact that we were in a strong position going into the year really makes this more of an opportunity for us than a crisis. . . . There’s a lot of dislocation in the market, we’re seeing opportunities we probably haven’t seen since 2008.”
Indeed, 2019 was a good year for the HOOPP across all asset classes. Public equities posted more than $5.76 million in net investment income for the fund, up from a loss of about $2.15 million in 2018. Canadian public equities returned 21.4 per cent in 2019, a rise on the negative 6.6 per cent return it posted in 2018. In particular, strong gains from gold mining companies pushed returns higher as the price of gold shot into $1,500-per-ounce territory.
The HOOPP’s U.S. equities portfolio returned 30.3 per cent — up from negative 5.2 per cent in 2018 — as many sectors posted double-digit gains, with the technology sector leading the pack. International equities also performed well, at 21.7 per cent.
Looking at fixed income, bond valuations pushed higher as interest rates slumped. Short-term bonds returned $131 million in net income, nominal bonds brought in about $4.76 million and real return bonds posted $795 million.
“The prevailing market perspective is that holding bonds provides very little value because of their extremely low yields,” said the HOOPP’s annual report. “But our approach to risk management, through our liability driven investing strategy, kept us invested in bonds and those holdings saw a substantial increase in value as interest rates declined. These investments also helped offset the increase in the value of our pension obligations that resulted from the fall in interest rates.”
Private equity, which represents 10 per cent of the total fund, returned 14 per cent for the year on a currency hedged basis, up slightly from 13.7 per cent in 2018. Meanwhile, the fund’s real estate portfolio returned 8.35 per cent on a currency hedged basis and was valued at $14.6 billion on a gross market value basis by year-end 2019, in comparison to $14.3 billion at the end of 2018.