In Ontario, health care has long been one of the healthier economic sectors to work in. And it may well be the healthiest sector to retire from, if recent announcements from the Healthcare of Ontario Pension Plan (HOOPP) are anything to go by.
In 2014, HOOPP’s investments returned an impressive 17.7 per cent, swelling its assets by $9.1 billion to $60.8 billion from $51.6 billion in 2013. Even the mighty Ontario Teachers’ Pension Plan only returned 10.9 per cent in 2013.
HOOPP’s average 10-year return is 10.27 per cent; its average 20-year return 9.8 per cent.
Last year saw the strongest performance 1991 for the 295,000-member, 470-employer plan, established in 1960. It’s the eight-largest pension fund in Canada and the third-largest in Ontario. “The return was higher for 1991, but back then the fund was only a tenth of its current,” said CEO Jim Keohane in a media briefing at HOOPP’s Toronto headquarters on March 4. “Globally, we have the highest return of any pension fund in the past 10 years.”
Such returns have placed HOOP in the enviable position of being fully funded at 115 per cent of its obligations, so member/employer contribution rates have remained stable since 2004. And at a time when some of its underfunded counterparts are looking to cut benefits to their pensioners, HOOPP is increasing them, providing inflation protection by upping coverage of annual cost-of-living increases to 100 from 75 per cent.
Keohane attributed the results to a prudent liability-driven investing (LDI) strategy, adopted several years ago. LDI uses two investment portfolios: a liability hedge portfolio aimed at mitigating risk associated with pension obligations, and a return-seeking portfolio designed to earn incremental returns that help keep contribution rates stable and affordable. “2014 was a year that highlighted the merits of the LDI approach,” Keohane said.
Last year, the hedge portfolio furnished about 72 per cent of investment income, with nominal bonds and real-return bonds generating returns of 30.2 per cent and 13.4 per cent, respectively. The real-estate portfolio provided a 9.8 per cent return. Within the return-seeking portfolio, public equities were the largest income earner, returning 10.4 per cent. Private equity posted a return of 16.3 per cent.
HOOPP’s management would like to increase the fund’s holdings in real estate. “It’s a good long-term investment but in the short term it’s challenging to find good opportunities,” said Keohane. “In Toronto, the valuations are too high. We have trouble finding deals.”
HOOPP is constructing a new building on Toronto’s York Street and will relocate its headquarters there sometime next year. It’s also constructing a building in the insurance district of London, Ont., and a high-density shopping/residential complex in Vancouver. In Europe, it’s focusing on industrial buildings.
With a commitment to responsible investment, HOOPP’s real estate portfolio includes a green program to make its buildings environmentally sustainable. Managers of existing buildings are given targets to reduce carbon output and water usage. “And our new building will be platinum-certified,” said Keohane, referring to the green rating system of Leadership in Energy and Environmental Design.
So has Canada’s recently delinquent dollar affected the plan’s health through unfavourable currency exchange rates? “It’s had very little impact because we are hedged,” said Keohane. “And we don’t have much foreign exposure except in real estate.”
Looking ahead, Keohane said, HOOPP remains intent on “improving security and services for members and introducing new efficiencies down the road.”