Like other large defined benefit pension funds in Canada, OPTrust, which manages the OPSEU Pension Plan, saw its 2015 investment return slide amid low interest rates, volatile equity markets and declining commodity prices. However, Ontario’s fifth largest public pension plan remained fully-funded.
In 2015, OPTrust’s net-of-fee investment return shrank to 8%. That compares with 12% in 2014. The pension fund’s net investment income was $1.4 billion.
“Last year was a challenging year,” Hugh O’Reilly, OPTrust’s president and chief executive officer, said in an interview, citing low interest rates, volatility in stock markets and low commodity prices. In that type of year, 8% is a “great return,” O’Reilly explained.
And, “in 2014 there was a significant sale of one of our infrastructure assets, which contributed [to the 2014 return],” he added.
The investor’ costs were 43 basis points in 2015.
Despite the decline in the 2015 return, OPTrust saw its net assets increase to $18.4 billion, up from $17.5 billion in 2014.
The plan was 100.1% funded, with a liability discount rate of 5.55%.
Also, the valuation revealed OPTrust had $1.1 billion in deferred investment gains, compared to $1.2 billion at the end of 2014. These gains are expected to materialize between 2016 and 2019 and to boost the plan’s funded status.
In an effort to better match assets and liabilities, OPTrust increased its exposure to Canadian government bonds last year, O’Reilly said.”Given that our liabilities are very sensitive to swings in interest rates, [this] is a very sensible thing to do in terms of risk management,” he explained. “And, at the beginning of this year, we increased the duration of our bond portfolio so that we have a better match to our liabilities.”
The pension plan has also reduced exposure to Canadian public equities.”That’s in part because those equities are very sensitive to changes in commodity prices,” O’Reilly explained.
Caisse de dépôt et placement du Québec, the Healthcare of Ontario Pension Plan and the Ontario Municipal Employees Retirement System also saw their 2015 returns take a hit in the challenging economic environment.
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