OPTrust returns 11.2% in 2019, lowers discount rate

The OPSEU Pension Trust saw a strong 2019, ending the year with an 11.2 per cent net investment return and maintaining its fully funded status.

The plan’s total assets grew from almost $20 billion of net assets in 2018 to almost $22 billion in 2019, according to its 2019 funded status report.

In other highlights from the report, the OPTrust’s real discount rate was lowered to 3.10 per cent in 2019, net of inflation, from 3.15 per cent in 2018. Its nominal discount rate was 5.10 in 2019, down from 5.15 in 2018.

Read: OPTrust remains fully funded, lowers discount rate in ‘worst year for markets’

“Our discount rate strategy is an important component of our funding policy,” noted the report. “The discount rate includes a margin to protect the plan from future adverse events. The level of margin within the discount rate is set so that the funded status of the plan is preserved. This means that we decrease the discount rate when there is positive experience and consider increasing it during challenging times.”

Indeed, 2019 was a positive year for the OPTrust. Public equities performed strongly, with overall exposure to the asset class delivering a net return of 23.2 per cent. Similarly, the plan’s private equity portfolio generated a net return of 24.7 per cent.

Meanwhile, its credit strategies returned a net return of 13.4 per cent, while market-neutral strategies delivered 2.2 per cent, real estate generated 5.2 per cent, infrastructure delivered 12.8 per cent and the risk-mitigation portfolio earned 5.4 per cent.

Read: Equities boost OPTrust return to 9.5% in 2017

While 2019 was a positive year for the pension fund, lower long-term expected rates of return are a challenge, says Peter Lindley, its president and chief executive officer, noting this was another reason the plan chose to lower its discount rate.

“Having a lower expected return in the future makes it more difficult to remain fully funded in the long run. So that’s why we wanted to be more conservative and lower our discount rate again.”

Over the past 10 years, the plan has produced an average 8.2 per cent net investment return on the total fund. And, of note, 2019 was the 11th consecutive year the plan has been fully funded.