Ontario’s Direct Investment Model Helped ‘Buffer the Impact’ of Global Market Downturns

Despite all major public markets indices being at a lower point last December than where they were at the beginning of the year, the Ontario Municipal Employees’ Retirement System (OMERS) pulled through with a positive 2.3% return, or $2.2 billion, for 2018.

The core of the diversity in its portfolio is the strength in the system’s private markets strategies, which are separated between OMERS Infrastructure and OMERS Private Equity. Together, the two generated a 10.3% return in 2018, with about $10 billion deployed in new investments in the strategies during that time.

“A return of 10.7% from private investments and positive returns on our credit portfolio buffered the impact of public markets in a year when all major indices were lower compared to where they were at the beginning of the year,” said Michael Latimer, chief executive officer of OMERS.

The system improved its funded status to 96%, which “primarily reflects our five-year net investment return of 8.1%,”said Jonathan Simmons, the system’s chief financial officer.

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OMERS’s infrastructure program is a prominent standard-bearer of the direct investment model that many Canadian institutional investors employ, and follows a robust, active strategy that holds many different high-profile assets in its portfolio, including the London City Airport, Chicago Skyway, Port of Melbourne, and Thames Water. The team closed on at least five different acquisitions in 2018,a feat considering the illiquid, expensive nature of the asset class. OMERS Infrastructure also recently announced its first foray into the Indian infrastructure market, which is poised to generate lots of attention from other investors since the need for physical assets to support the growing population is significant.

OMERS Private Equity equally closed on five acquisitions during 2018, according to its website. The $11.5 billion (net) portfolio is supported by over 50 investment professionals who specialize in direct investment strategies.

The system’s net returns and asset mix in 2018 are summarized below:

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Tags: Ontario Municipal Retirement System, Pension, Private Equity, Returns

New York City Comptroller Scott Stringer has begun a new institutional investor rally aimed at the top 20 power generators.

The endeavor, known as the Climate Majority Project, is made up of organizations such as the New York City funds and the California Public Employees Retirement System (CalPERS) that manage a collective $1.8 trillion in global assets. The group wants the 20 largest publicly traded utility companies to eliminate their carbon pollutants by 2050.

Stringer’s office says doing so would wipe out almost half of the power sector’s carbon emissions, repositioning the US for a more sustainable power grid and economy. The idea is to keep the country inline with the Paris Agreement despite the Trump administration’s withdrawal from the pact.

“We believe that every utility can and should commit to achieving the goals of the Paris Agreement of limiting warming to well below 2 degrees by setting a clear target of net-zero carbon emissions for electricity by 2050 at the latest,” the group said in an accompanying statement.

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“The climate crisis is an imminent threat not only to our planet, but to pensions systems, and ultimately, our beneficiaries,” Stringer said. “Delaying climate action is like denying climate change—it’s not an option for these companies or for anyone else.”

Stringer added that the decarbonization move is a “financial necessity” for the mega-powers.

“This initiative makes clear that mobilizing for the planet goes hand-in-hand with protecting our pensions, and we need these commitments now,” he said.

The comptroller has signed on behalf of three of New York City’s five pension funds (Employees’ Retirement System, Teachers Retirement System and the Board of Education Retirement System), which had a combined $193.73 billion in assets under management as of November 2018. Other signees of the coalition include CalPERS ($355.2 billion), the Connecticut Retirement Plans and Trust Funds ($34 billion), Trillium Asset Management ($2.5 billion), and the Connecticut and Illinois state treasurers.

The group also wants the utilities companies to implement board oversight in their carbon reductions and be more transparent in their progress reporting.

Of the 20 utility businesses, Xcel Energy is the only one with commitments to a net-zero target.

The project has backed up its statements in a 20-page report titled “Net-Zero by 2050.”

“Electricity decarbonization delivers double benefit, both by eliminating the sector’s own substantial emissions and by unlocking the benefits of electrifying other sectors, such as transportation,” said the report. “Failure to decarbonize poses material risks for electric utility investors.”

The risks include extreme weather events, increased pollution-related health issues, and biodiversity problems.

The group said in an accompanying statement: “As investors, we are responsible for broad portfolios that are already seeing the early stages of the expected negative impacts and ongoing economic costs of climate change, including the impact of extreme weather events on property and agricultural/fisheries yields, rising pollution-related health care costs, and lost worker productivity.”

The unit also noted that Stanford University researchers have estimated more than $20 trillion in damage could be stopped by the end of the century if global warming were cut back to 1.5 degrees Celsius instead of 2 degrees Celsius.

Tags: CalPERS, Carbon, Climate Change, Climate Majority Project, ESG, New York City, Paris agreement, Pension, Scott Stringer