HOOPP Boosts Real Assets as It Shrinks Bond Exposure

The Healthcare of Ontario Pension Plan (HOOPP) will continue boosting its real estate and burgeoning infrastructure portfolio as it diversifies away from low-yielding bonds in a rethink of its traditional liability-driven investing (LDI) strategy.

Infrastructure assets could grow to be a C$10 billion-plus (US$8 billion) portfolio at the health care system, according to HOOPP President and CEO Jeff Wendling. Unlike other Canadian pension plans, HOOPP has not traditionally fostered an infrastructure effort. After committing to build up the asset class in 2019, allocators earmarked C$1.2 billion to the strategy.

Last year, the health care system invested C$174 million into renewable energy assets in the US, with C$57 million yet to deploy this year. It also took a C$270 million stake in a Portuguese fiberoptic infrastructure company.

HOOPP has also made “significant inroads” expanding its real estate investments outside of Canada, especially in logistics, Wendling said. The allocator is already a major industrial landlord in the greater Toronto area, but it plans to build up its presence in developed markets in the US and Western Europe. It has major projects in the UK and Germany.

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Logistics have a greater weighting in the fund’s C$15.5 billion real estate portfolio than does retail. Industrial holdings count for 32% of the portfolio; poor-performing retail, about 20%.

“Private markets generally are going to get larger here at HOOPP,” Wendling said.

All this is happening as Wendling, who is also acting CIO, continues a search for the fund’s next investment chief. HOOPP is reviewing applicants from Canada and abroad. Ideal candidates will have a background in senior investment management, as well as experience in internal management of funds and direct investing.

The chief executive expects the fund will establish more offices abroad as it eyes more international investments, potentially setting up external teams in Asia or the United Kingdom. The plan has an investment team of about 80 people.

HOOPP is prioritizing its infrastructure and real estate asset allocations as it adapts its LDI strategy to a low-interest rate environment. Over the past 15 years, both Wendling and his predecessor, Jim Keohane, have maintained a strong fixed-income allocation, which the plan now is rethinking.

Bonds have worked as a great hedge during market downturns, Wendling said, but the chief executive is looking for other assets with defensive characteristics that can generate better returns.

Regardless, the health care organization’s investment management last year helped HOOPP advance 11.4%, the fund announced Wednesday. During the market selloff last February and March, the pension plan reduced its fixed-income portfolio, selling off bonds as yields approached zero, and rebalanced into public equities and corporate credit. The Canadian pension plan favored bank shares.

It also helped HOOPP surpass C$100 billion in assets for the first time. By the end of 2020, the fund had C$104 billion, up from C$94.1 billion the previous calendar year. The plan has a 119% funded status.

More impressive is the fund’s 10-year annualized rate of return, which is 11.16%, among the highest results of pension plans worldwide, according to CEM Benchmarking.

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Tags: Coronavirus, Healthcare of Ontario Pension Plan, HOOPP, Jeff Wendling, Jim Keohane, Ontario, Pension, Retirement

The GOP-run Kentucky state legislature has overridden Democratic Gov. Andy Beshear’s veto of a pension reform bill that will place new teachers in a hybrid pension plan that incorporates aspects of a defined contribution (DC) and a defined benefit (DB) plan.

Under House Bill 258, new teachers are required to contribute more to their retirement plans than current teachers do, and they will have to work for 30 years instead of 27 to earn their maximum benefits. The new rules will become effective at the beginning of 2022.

The bill had been passed by large majority of both chambers of the legislature earlier this year, with the House passing it by a vote of 68 to 28 and the Senate passing it by a count of 63 to 34. Because the state’s Republicans have a supermajority in both the House and Senate, they didn’t have much difficulty in overriding the veto, which was one of 24 vetoes passed down by Beshear, a Democrat, that were overridden in one day.

In vetoing the bill, Beshear said it “prospectively cuts teachers’ retirement benefits, which will impair the commonwealth’s ability to attract and retain teachers,” adding that “teachers deserve better than House Bill 258.”

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Kentucky lawmakers have been trying for several years to get a statewide pension reform bill passed, most recently in 2018. The Kentucky Senate was rebuked by then–Attorney General Beshear and the state teachers’ associations after passing a pension reform bill that was tucked inside a sewage services bill without allowing the public to comment on it. Although the bill was signed into law by then-Gov. Matt Bevin, a Republican, the state’s Supreme Court eventually struck the law down, saying state lawmakers weren’t given a “fair opportunity” to consider the bill before it was voted on and passed.

According to an actuarial analysis summary by Cavanaugh Macdonald, the new tier of benefits introduced by the law significantly decreases employer costs during the projection period.

“As actuarially required contributions are made, the legacy plan will be more actuarially sound,” said the analysis. “At the same time, there is no impact on any current benefits or participation for any current member of TRS [the Kentucky Teachers’ Retirement System].” It also said that the legacy liability for current members should be paid off in 24 years.