Healthcare of Ontario Pension Plan, Toronto, returned 17.71% on its investments in 2014, on the strength of its liability-driven investing strategy, said Jim Keohane, president and CEO.
The returns surpassed HOOPP's custom benchmark of 15.61% and helped raise the pension fund's assets to C$60.8 billion (US$48.6 billion) as of Dec. 31, up 17.8% from 12 months earlier. HOOPP's funding ratio as of Dec. 31 was 130%, vs. 124% in 2013.
Its discount rate last year was 5.85%, down from 6.25% in 2013.
The pension fund's investments returned an annualized 13.8% over five years, 10.8% over 10 years and 9.98% over 20 years.
Investment income totaled C$9.1 billion last year, up 127.5% from 2013.
In 2014, nominal bonds returned 30.2%; private equity, 16.3%; real-return bonds, 13.4%; public equities, 10.4%; and real estate, 9.8%.
HOOPP's asset allocation as of Dec. 31 was 44% fixed income, 28.5% public equities, 12.5% real estate, 10% credit and 5% private equity. Fixed income, credit and real estate are in the pension fund's liability-hedging portfolio; the rest are categorized as return-seeking assets.
Mr. Keohane said in a conference call that declines in interest rates last year benefited the plan's bond holdings and more than offset the impact on its pension liabilities.
Concerns in the current year include global valuations that Mr. Keohane said were “quite high. We're looking also at lower interest rates, so there's not a lot of room for error. Oil prices also are indicative of a global economy that's quite weak.”
Mr. Keohane said that while targets will remain the same, “we do dynamically manage our liability hedging strategy and rebalance over time. Because rates are so low, we may take action to reduce our bond holdings.”
The effect of the decline in the Canadian dollar has been minimal to HOOPP's portfolio, Mr. Keohane said. “There's been very little impact,” he said. “We hedge out our dollar exposure. In equities, we do that through derivatives, so the only exposure we have (in return-seeking assets) is in private equity and real estate, and that's where we hedge it out.”
