OMERS posts “terrific” results from alternatives

The Ontario Municipal Employees Retirement System, a Canadian pension fund that recently ousted its chief executive, posted a “terrific” return of 16.4 percent for 2006 thanks to strong gains in alternative assets.

OMERS, Canada’s fourth biggest pension fund, made C$6.5 billion income in 2006, $1 billion more than the previous year. This took the value of its net assets to C$47.6 billion. Overall its investments generated a 16.4 percent return.

The news comes in the wake of a strong year for Canadian pension funds, which enjoyed an average return of 12.9 percent. OMERS’ return not only beats this but also the 14.6 percent return posted by the Caisse de Depot et Placement du Quebec, Canada’s biggest pension fund, which included a 30.4 percent return from its private equity investments.

OMERS’ private equity arm also enjoyed a good year, returning 17.7 percent. The fund invested C$2.9 billion in the asset class last year, compared with C$2.4 billion in 2005. It now has 6 percent of its money invested in private equity, which is still below its target figure of 10 percent.

The biggest growth was in its real estate portfolio, which gained 26.2 percent and now accounts for about 10 percent of OMERS’ assets. Deals included the C$1.3 billion acquisition of seven hotels in September.

In total, real estate, private equity and infrastructure – which returned 14 percent – now account for about one quarter of OMERS’ assets under management. The fund said it wants to increase this to 37.5 percent in the next few years.

The results seem to vindicate the work of outgoing chief executive Paul Haggis, whose departure was announced earlier this month. Since joining the fund in 2003, Haggis has reorganised its investment strategy, increasing its allocation to alternative assets and turning it into an active shareholder.

However, the board of OMERS said it was “time for a change” as the fund implemented a new governance model imposed by the government, whereby it will have one board to oversee pension assets and another to set benefit policies. But the lack of an obvious successor – the board has said it could take up to a year to appoint a replacement – has raised concern amongst members of the scheme.