Investments
How We Invest
Keeping the Plan in balance to preserve its fully funded status
Over 70 per cent of our retirement benefits come from investment returns, highlighting the significant role of our Member-Driven Investing (MDI) strategy in delivering pension security.
Our MDI strategy is our unique take on a Total Portfolio Approach, designed to deliver pension certainty. By maximizing returns at an acceptable level of risk, MDI helps us cost-effectively achieve our long-term goal of remaining fully funded.
Our internal approach
Internally managed strategies amounted to more than 70 per cent of our Total Portfolio as of end 2023. We began our internalization journey in 2016 and now have internally managed assets across our private and public market investments. We focus our internal resources on investment activities where we have the expertise and scale to be successful. Otherwise, we outsource to our investment partners, including fund and external managers. External relationships are crucial to our overall investment success.
Our global approach
Our global approach to investing provides geographic diversification and enhances returns for the Total Portfolio. Our investment teams, based in Toronto, London and Sydney, are essential for accessing a wide range of investment opportunities. They bring deep expertise and local insights, enabling us to drive value and capitalize on global opportunities.
Focus on active management
Active management is best deployed in areas where markets are less efficient and our team members have the greatest potential to create value. We believe this is best achieved in the illiquid asset classes, such as real estate, infrastructure and private equity. Within public markets, our asset mix exposures and Total Portfolio risk profile are actively managed and vary through time. At the asset class level, we employ active management where we believe value-creation opportunities exist, and otherwise obtain exposure passively in a cost-effective fashion.
Implementing our MDI strategy
Our MDI strategy is put into practice through a three-step process.
Step 1: Partially hedge our liabilities through our Liability Hedging Portfolio of government bonds
Step 2: Allocate to our illiquid asset strategies where we have the greatest potential for value creation
Step 3: Add liquid assets to “complete” the portfolio and achieve our desired risk and return profile for the Total Portfolio
All numbers are as of December 31, 2023, aligned with the 2023 Funded Status Report.
Our Total Portfolio is further divided into four sub-portfolios across liquid and illiquid markets – each with a specific purpose – to help us achieve our investment objectives.
Liability Hedging Portfolio
The Liability Hedging Portfolio is designed to help manage funded status volatility by mitigating risk associated with changes to the discount rate of the Plan’s pension liabilities.
Return Seeking Portfolio
The Return Seeking Portfolio is designed to deliver a diversified source of return from riskier assets, helping to keep our Plan fully funded over the long term.
Risk Mitigation Portfolio
The Risk Mitigation Portfolio is designed to enhance pension security by helping to reduce the long-term impact of severe market drawdowns on our funding ratio. It is expected that this portfolio contributes positively to long-term returns by smoothing the volatility of the Total Portfolio.
Funding Portfolio
This portfolio manages funding and liquidity reserves needed to implement our Total Portfolio and manage day-to-day liquidity requirements. The use of moderate leverage allows us to access a more diversified set of strategies and achieve a better overall risk-return profile.
Asset Mix as at Dec. 31, 2023
Asset Mix | |
|---|---|
Liability Hedging Portfolio | 25.5% |
Return Seeking Portfolio | 94.1% |
Public Equity | 12.3% |
Private Equity | 19.1% |
Credit | 14.8% |
Multi-Strategy Investments | 8.8% |
Real Estate | 18.0% |
Infrastructure | 16.9% |
Commodities | 3.7% |
Other* | 0.5% |
Risk Mitigating Portfolio | 9.3% |
Funding Portfolio | -28.9% |
Total Portfolio | 100.0% |
* Other includes thematic investments such as digital assets, fintech, and sustainable investing.
Illiquid Assets
Our illiquid assets, infrastructure, private equity and real estate investments are managed within our Private Markets and Real Estate Groups. They focus on generating attractive long-term returns with a high degree of active management. Since their inception, these teams have delivered strong investment returns and value add. They are highly active in their investment process and bring vast sector knowledge to sourcing and diligence in their respective markets and portfolios.
Since 2006, our Private Markets Group has managed the total portfolio's infrastructure and private equity investments.
With two international offices in the U.K. and Australia, we have established strong local partnerships and presence. Our local presence allows us to better understand and manage the unique risks associated with international private market investing.
Private Equity
Our private equity strategy looks at a broad range of investment opportunities and executes on those that offer the most attractive risk-adjusted returns. The team invests directly in private companies, typically alongside partners, and indirectly through private equity funds.
Infrastructure
Our infrastructure strategy primarily focuses on deploying capital through platform companies, investing directly in infrastructure assets and indirectly through funds.
Since 2006, our Private Markets Group has managed the total portfolio's infrastructure and private equity investments.
With two international offices in the U.K. and Australia, we have established strong local partnerships and presence. Our local presence allows us to better understand and manage the unique risks associated with international private market investing.
Private Equity
Our private equity strategy looks at a broad range of investment opportunities and executes on those that offer the most attractive risk-adjusted returns. The team invests directly in private companies, typically alongside partners, and indirectly through private equity funds.
Infrastructure
Our infrastructure strategy primarily focuses on deploying capital through platform companies, investing directly in infrastructure assets and indirectly through funds.
Our real estate team has more than 20 years of experience. Team members focus on selectively sourcing investments that can deliver predictable and growing income profiles over the longer term.
Our real estate investment strategy focuses on investing across the four quadrants: private, public, equity and credit. We strategically identify value across the entire capital stack, including international investments, particularly in the U.K. and Europe.
Our real estate team has more than 20 years of experience. Team members focus on selectively sourcing investments that can deliver predictable and growing income profiles over the longer term.
Our real estate investment strategy focuses on investing across the four quadrants: private, public, equity and credit. We strategically identify value across the entire capital stack, including international investments, particularly in the U.K. and Europe.
Liquid Assets
Our Total Portfolio Management team manages our liquid assets, including bonds, Liability Hedging Portfolio, public equities, credit, multi-strategy investments and commodities. Our liquid strategies aim to complete our total portfolio risk-return profile to best deliver on our investment objective.
The team also manages the Total Portfolio’s funding, liquidity and currency management activities, and a small incubation portfolio focused on emerging new technologies.
Liability Hedging Portfolio
Designed to help manage funded status volatility by mitigating risk associated with changes to the discount rate of the Plan’s pension liabilities. This portfolio is composed of long-term Canadian federal and provincial government bonds. It also serves as the main source of liquidity for the Plan.
Public Equity
Our public equity exposure complements our private equity strategy by providing additional, liquid and differentiated sources of equity returns. We obtain diversified exposure across both developed and emerging markets.
Credit
Given the variety of sub-strategies in the credit space, our credit investments serve as a diversifier to the Total Portfolio. We invest using a combination of external managers and internally managed strategies.
Multi-Strategy Investments
Our multi-strategy investments consist of a wide range of liquid strategies that provide return streams that are differentiated from traditional asset classes. These strategies can be more complex and dynamic, generally increasing our Total Portfolio's resilience through different market regimes.
Commodities
Our commodity exposure provides protection against inflation shocks and helps construct a more resilient Total Portfolio through different market regimes. Our exposure to commodities is dynamic, rather than a traditional buy-and-hold. It is designed to capture the upside when the market cycle is favourable and limit exposure otherwise.
Incubation Portfolio
In addition to overseeing our liquid assets, the Total Portfolio Management team manages a small portfolio focusing on emerging and potentially transformative technologies.
Liability Hedging Portfolio
Designed to help manage funded status volatility by mitigating risk associated with changes to the discount rate of the Plan’s pension liabilities. This portfolio is composed of long-term Canadian federal and provincial government bonds. It also serves as the main source of liquidity for the Plan.
Public Equity
Our public equity exposure complements our private equity strategy by providing additional, liquid and differentiated sources of equity returns. We obtain diversified exposure across both developed and emerging markets.
Credit
Given the variety of sub-strategies in the credit space, our credit investments serve as a diversifier to the Total Portfolio. We invest using a combination of external managers and internally managed strategies.
Multi-Strategy Investments
Our multi-strategy investments consist of a wide range of liquid strategies that provide return streams that are differentiated from traditional asset classes. These strategies can be more complex and dynamic, generally increasing our Total Portfolio's resilience through different market regimes.
Commodities
Our commodity exposure provides protection against inflation shocks and helps construct a more resilient Total Portfolio through different market regimes. Our exposure to commodities is dynamic, rather than a traditional buy-and-hold. It is designed to capture the upside when the market cycle is favourable and limit exposure otherwise.
Incubation Portfolio
In addition to overseeing our liquid assets, the Total Portfolio Management team manages a small portfolio focusing on emerging and potentially transformative technologies.
Investing sustainably
Our responsible investing and climate change strategies play a key role in making informed investment decisions, creating value and securing pensions for our members for decades to come.
Recognizing that environmental, social and governance factors can materially impact investment risk, return and our reputation, every OPTrust investment professional is responsible for integrating ESG risks and opportunities in their decision-making and portfolio management.
In addition to overseeing OPTrust’s climate change strategy and Responsible Investing program, the Sustainable Investing and Innovation team leads the sustainable incubation portfolio, which invests in earlier-stage strategies focused on climate change and the energy transition.
Explore the Responsible Investing program