OMERS Strategic Investments Division Falters

(March 10, 2010) – While the Ontario Municipal Employees Retirement System (OMERS), one of Canada’s largest pension funds, posted a $4.1 billion gain in investment income for 2009, the fund’s strategic investments division underperformed.

The recently formed OMERS Strategic Investments reported a 1.2% loss for the year, compared to the benchmark of 10.7%.

OMERS Strategic Investments, the investment entity of the $45 billion OMERS, was formed last year to create a portfolio of investments in private companies around the world, such as airports, real estate developments, and energy projects. The fund’s first long-term partnerships were with HAS Development Corporation (HASDC) and Airport Development Corporation (ADC) to pursue airport acquisition and operation opportunities.

Despite the poor returns of OMERS’ investment structure, Leo de Bever the CEO of Alberta’s AIMco — the corporation created to manage the province’s pension and sovereign wealth fund — spoke positively of internal private equity teams to ai5000. “I paid [US $160 million] in external fees last year,” he said in a December interview. “I think we can cut that down by four times if we move some of it internally.” His outlook mirrors other large Canadian institutions, which have created internal private equity team to pursue direct investments and avoid external fees, ai5000 reported.

Whether or not the recent negative news about OMERS’ in-house team changes Bever’s mind is unknown and unlikely.

OMERS, which invests on behalf of more than 400,000 retired and working municipal employees in the province of Ontario, has decreased its exposure to public market investments from 82.2% in 2003 to 60.2% at the end of 2008. The fund’s target allocation is 57.5%. During the same period, the fund’s exposure to private markets has increased from 17.8% to 39.8%. It’s long term asset mix: interest-bearing (10%), real return bonds (5%), public equity (42.5%), private equity (10%), infrastructure (20%), real estate (12.5%).

“Like the majority of the large plans, pension obligations have been increasing at a greater pace than contributions,” said OMERS’ Chief Financial Officer Patrick Crowley in a release. Over the next three years, OMERS plans to change its asset mix, Reuters reported. It’s looking to shift from a 61% investment in public markets and a 39% investment in private equity to a more 50-50 split.