While executives at the Caisse de Depot et Placement du Quebec saw benefits in investing in energy distribution to offset reduced oil prices, Jim Keohane, president and CEO of the C$65 billion ($54.2 billion) Healthcare of Ontario Pension Plan, Toronto, took some mark-to-market losses on its direct energy holdings.
But the plan only has “a couple direct investments” in energy that comprise less than 1% of HOOPP's overall portfolio, Mr. Keohane said. And the losses were more than offset by its returns in fixed income.
“Overall, it's a net positive for us,” Mr. Keohane said. “There's a negative correlation between oil and bonds. As oil prices fell, our bond holdings, which are a lot larger percentage of our investments, rallied.”
In 2014, HOOPP's nominal bonds returned 30.2%, while real-return bonds returned 13.4%. Overall, the fund's 44% fixed-income allocation, 10% in credit and 12.5% in real estate are in the pension fund's liability-hedging portfolio.
That kind of diversification is an example of how executives at most large Canadian pension fund managers like the Caisse, which manages C$225.9 billion, are not only protecting against oil-price volatility, but also investing less generally in Canadian equities, said Robert Boston, partner and Ontario and Western Canada practice leader for the investment consulting group at Morneau Shepell Ltd., Toronto.
“Their exposure to Canadian equities is now 10% to 15%,” Mr. Boston said. “If you're investing in Canadian equities, you're in one of three things — energy, materials and financials. You're overweight or underweight energy if you're overweight or underweight Canadian equities or overweight or underweight the Canadian dollar. All of those have been the declining; the Canadian dollar vs. the U.S. dollar is down 9.2% so far this year. So their diversification is protection against all those things.”