Innovation

The Pension Fund That Became a General Partner

Borealis Infrastructure is a C$70 billion (US$53 billion), 80-person asset manager making direct investments in global, large-scale infrastructure projects on behalf of allocators in Japan and Canada.

Oh, and it’s run by a pension fund.

Borealis is one of a number of affiliated managers operated by the Ontario Municipal Employees Retirement System (OMERS)—the C$77 billion fund responsible for investing and administering Ontario’s local government pensions. First established in 1999 to invest on behalf of OMERS, Borealis’ investors now include Japan’s Pension Fund Association and Government Pension Investment Fund—making OMERS simultaneously asset owner and asset manager.

“You have a pension fund that is actually managing other pension funds’ capital, which is remarkable,” says Ashby Monk, research director at the Stanford Global Projects Center. “They were one of the very first to do that.” By acting as a general partner, he adds, OMERS is able to “minimize the cost of building some of these very sophisticated programs.”

As well as Borealis, these sophisticated programs include venture capital arm OMERS Ventures and Oxford Properties, a dedicated global real estate manager with a team of 2,000. In April, OMERS hedge fund investor Michael Ashmore called the fund’s American real estate effort the “largest private real estate development project in the history of the US.”

The ‘Canadian Model’—implemented first by the Ontario Teachers’ Pension Plan in 1991 but soon adopted by several of its peers, OMERS included—is all about insourcing and private-markets investing, explains Keith Ambachtsheer, president and founder of consultant KPA Advisory Services. As Ambachtsheer writes in his latest book, The Future of Pension Management, the innovative model makes it possible for funds to implement “truly long-horizon, wealth-creation investment mandates.”

OMERS has taken that model and run with it.

Under the leadership of Michael Latimer—first as the fund’s CIO from 2010 to 2014 and now as its president and CEO—the fund has executed some of the largest direct deals in institutional investing. Most recently, it concluded a co-investment in a major Australia port and had a share in a joint purchase of London City Airport. In 2009, OMERS went so far as to establish OMERS Investment Management—the legal entity that would allow Borealis Infrastructure, and later, a venture capital fund, to invest assets on behalf of third parties.

The fund’s aggressive strategy has been called “ballsy” (see last year’s Power 100), but so far it seems to be paying off. In 2015—a year in which many American funds struggled just to secure a positive investment return—OMERS saw its portfolio value increase 6.7%. Latimer attributed the result to the fund’s diversified investments in “high-quality” private equity, infrastructure, and real estate assets. These private investments make up nearly half of the total portfolio—the bulk of which is run internally, thanks to a large in-house team and competitive compensation.

“At its core, [the Canadian Model] is a governance model that recognizes the pension fund as a business and resources it accordingly,” says Monk. “Canada Pension Plan, Ontario Teachers’—these funds have hundreds upon hundreds of employees at offices around the world.”

OMERS, for one, has offices in the US, Canada, Europe, and Australia, much like you’d expect from any major asset management firm. And as a general partner with third-party assets under its control, OMERS is on its way to becoming just that. —Amy Whyte