Plan Sponsor Week: HOOPP looking to LDI strategy 2.0 amid low interest rates

The Healthcare of Ontario Pension Plan generated an 11.28 per cent return in 2021, led by its public and private equity portfolios.

“It was a strong year — we had a return of 11.28 per cent and hit an all-time high for our assets,” says Jeff Wendling, the pension fund’s president and chief executive officer. “It is a measure of our ability to deliver returns in some challenging circumstances. We feel very proud to work for the health-care workers in the pandemic. To have put in such a good year for them — it means a lot to us.”

Read: HOOPP names veteran Jeff Wendling new president and CEO

In 2021, the HOOPP’s assets under management grew from $104 billion to $114.4 billion, pushing its solvency ratio to 120 per cent. The largest gains were made in its private equity portfolio, which grew by 23.65 per cent, followed by its public equity portfolio, which grew by 23.65 per cent.

Wendling credits the success of the HOOPP’s public equities portfolio to its exposure to European and North American equities. However, he believes these holdings are unlikely to provide institutional investors with the same benefits in 2022 as they offered in 2021.

“[The geopolitical situation] does present new challenges and concerns. [Before the invasion of Ukraine], we were already worried about rising inflation, stimulus rollbacks and global growth. [Now] we’ve seen a spike in commodity prices and further disruption of supply chains — all of this will present problems for growth and won’t stop inflation.”

Read: Equities, inflation, legislative changes push annuity transaction volume to record highs

To counter these risks, the HOOPP intends to diversify its holdings, making larger allocations to private assets, infrastructure and real estate. Wendling believes this will help the plan maintain its strong funded ratio without requiring a new de-risking strategy to help lock-in gains from 2021.

“We’re always very focused on risk — risk management is an area of strength with us, but de-risking is not on the table right now. We’ve done a number of things to be more resilient in a high-inflation environment.”

These changes include moving away from traditional bonds and into real return bonds. The pension fund has also begun a hedging strategy designed to offer some protection from the effects of persistent inflation. The HOOPP’s investment decision-makers also believe that, with volatility, may come opportunity.

“In any year, you can have volatility — our funded status over the past 10 years is above 10 per cent. We think long term — just look at our history. During the financial crisis and at the beginning of the pandemic, we were buying assets as their prices went down. If there’s a significant decline in equities, we’d be prepared to buy them at what we see as low prices.”

Read: How HOOPP is increasing DEI focus in culture, recruitment strategies