Canadian Investment Review

OPTrust returns 1% in ‘worst year for markets’ since financial crisis

Written by Staff on Monday, April 1st, 2019 at 8:14 am

Business chart with glowing arrows and world map © Daniil Peshkov / 123RF Stock Photos In a challenging market environment, the OPSEU Pension Trust returned one per cent in 2018, down from a 9.5 per cent return in 2017.

“OPTrust’s objective is to maintain the funded status of the plan without taking excessive risk,” said Doug Michael, interim president and chief executive officer of the OPTrust, in a press release. “In the worst year for markets since the global financial crisis, we maintained our fully funded status for the tenth consecutive year and increased the long-term stability of the plan by lowering our discount rate.”

The total fund outperformed the negative 0.2 per cent return of OPTrust’s reference portfolio, which is made up of 75 per cent global developed market equities and 25 per cent Canadian long-term bonds.

When it came to asset classes, public equities had a rough year. “Our public equity exposure is designed to complement our private equity strategy and generate returns using liquid market instruments,” the OPTrust’s 2018 Funded Status Report said. “Public equity markets had a challenging year in 2018, with major markets posting significant negative returns. Moderating global growth, rising interest rates, and tighter global liquidity conditions all weighed on equity markets. We maintain only a small amount of public equity exposure. It delivered a return of  negative 11.4 per cent through 2018.”

While not as low, the OPTrust’s fixed income portfolio earned negative 0.4 per cent and its alternative public market strategies generated a net return of negative 5.4 per cent in 2018.

The real estate, infrastructure and private equity portfolios showed more promise, with net returns of 7.6 per cent, 9.9 per cent and 15.7 per cent, respectively.

The OPTrust also lowered its real discount rate to 3.15 per cent, net of inflation, from 3.30 per cent in 2017. “OPTrust continued to add conservatism to our funding valuation by lowering the discount rate used to value the plan’s liability in order to help protect the plan from future market volatility,” the report said.

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