Private markets lift OMERS after tough year in equities

Negative performance in public equities but steady returns from private market investments generated a 2.3% overall return for the Canadian pension fund.

Private market returns including infrastructure dipped slightly for the Ontario Municipal Employees Retirement System but offset steeper losses suffered in a volatile year of public trading, the Canadian pension said in annual results published this week.

Investments in private equity, real estate and infrastructure generated a combined 10.7 percent in 2018, down by nearly a percentage point from 2017 but in line with returns those asset classes have generated for OMERS over a five-year period. The pension’s private markets exposure offset losses from public equities that amounted to 8.3 percent.

OMERS still grew its portfolio by C$2.2 billion ($1.67 billion; €1.47 billion) in 2018 to reach C$97 billion and a funding level of 96 percent, but that sets a slower pace than the C$6.25 billion of yearly growth the pension fund has averaged since 2014. The total portfolio returned 2.3 percent, far less than 11.5 percent in 2017 and its five-year average of 8.1 percent.

A spokeswoman for OMERS said in an e-mailed statement that returns from private investments and a “positive performance” of 3.1 percent from the pension’s credit portfolio helped limit losses from public equities. “Markets move in cycles and this was a year where equity markets, in particular, were very weak towards the end of the year,” the spokeswoman said.

Another Canadian pension fund, Caisse de dépôt et placement du Québec, reported a tough year for public equities. Last week, CDPQ said in its annual results that its equity markets portfolio returned negative 0.9 percent, while private equity returned 16.6 percent and real assets, including real estate and infrastructure, returned 9 percent.

In 2018, infrastructure returns for OMERS hit a four-year low at 10.6 percent, less than the 12.3 percent generated in 2017 and 11 percent generated in 2016. Real estate also fell from 11.4 percent in 2017 to 8.7 percent last year. Both asset classes now account for 18 percent each of the pension fund’s total portfolio.

OMERS declined to say whether it would increase or keep in place portfolio and return targets for infrastructure and real estate.

The Canadian pension added to its infrastructure portfolio in 2018 through deals including an add-on investment in UK utility Thames Water, the acquisition of US-based Leeward Renewable Energy and the $1.4 billion purchase of a 50 percent stake in BridgeTex Pipeline Company.

The pension also sold stakes this year in a portfolio of airports called Airports Worldwide and UK high-speed rail network HS1.

OMERS made its first infrastructure investment of 2019 earlier this month, when the pension acquired a 22.4 percent stake in Indian toll road company IndInfravit Trust, which holds a portfolio of five operational toll road concessions.

The C$160 million deal was the pension’s first in the country’s infrastructure sector and is an example of how OMERS “will participate in the Indian economy by investing into crucial infrastructure,” Ralph Berg, executive vice president and global head of OMERS Infrastructure, said in a statement.

The IndInfravit Trust deal will also allow OMERS to “deepen” its relationship with shareholders in the company, Berg said, including Allianz Capital Investors, the Canada Pension Plan Investment Board and L&T Infrastructure Development Projects Limited.

In 2018, OMERS opened its first office in the region in Singapore, indicating Asia will be a growing area of interest for investments going forward.