At OMERS Capital Markets (“OCM”), accountability for equity performance is assigned to our Managing Director, Head of Equities and his team. There are close to 30 investment professionals in the Global Equity, Canadian Equity and Equity Research groups.
The Canadian Equity group manages a portfolio consisting of high quality Canadian companies. We have an experienced team of portfolio managers and research analysts dedicated to investing in Canadian companies with strong fundamentals that are expected to provide strong returns over time. We employ a rigorous fundamental approach to analyzing companies in our universe. We focus on companies in strong industries with good business models, high performing management teams and solid financial strength. Our team has a disciplined approach to valuation, a long term perspective and extensive experience in the Canadian equity markets.
The Global Equity group manages a diversified portfolio of developed market global equities, with discretion to tactically invest in the U.S. and emerging markets. Our strategy is to invest in securities of well-managed companies with positive business outlooks that are considered to be undervalued or have the potential for above-average earnings growth. We primarily employ a cash flow driven valuation approach to determine intrinsic value. This approach is complemented by other methodologies as deemed appropriate to a particular sector or company. We risk adjust intrinsic values by sensitizing our valuation to a range of outcomes using Monte Carlo simulations. The aim of the Global Equity group is to invest in companies that meet our thresholds over a long term investment horizon in a concentrated portfolio.
The Equity Research team provides fundamental research on global industries and companies in support of, and in partnership with, the Global and Canadian Equity investment groups. The Equity Research team is in place in support of OCM's execution of its strategic plan. This plan includes an initiative to significantly increase our internal equity management capabilities thereby helping reduce external management expenses while enhancing portfolio returns for the OMERS Fund.
The mandate of the Multi-Strategy Portfolio is to manage a diversified portfolio of public market assets, similar to the OCM asset mix, based on a view that asset classes behave differently through the various stages of the business cycle. Portfolio management focuses on having the appropriate asset mix at each stage of the cycle and may utilize overlay strategies to enhance returns and/or protect capital. The Multi-Strategy Portfolio has two objectives, namely, to achieve above market returns over the long term and to protect capital during periods of unsettled and volatile markets.
Capital Market Research provides OCM's Asset Mix Committee, Global Allocation Committee and various portfolios with general insights into the long-term drivers of asset class returns, and specific insights into particular capital market questions raised by any portfolio group. The team uses many sorts of insights, specifically macro-economic insights gleaned from many sources as part of its analytical process; always with the purpose of determining what any insight of any kind means for asset returns. The team believes that long-term asset class returns are largely explained by fundamental drivers which typically experience longer-term cycles. Capital Market Research is deeply involved in business cycle analysis, providing insights about shorter-term prospects for the asset classes in which our portfolios invest. The team also pays attention to short-term factors like variations in the pace of cyclical economic growth, and very long-term ones such as the effect of demographics on asset class behaviour. The objective of the group is to assist OCM in managing assets so as to be able to earn the level of return required to meet the OMERS Fund's pension promise.
The Fixed Income & Currency group at OCM is one of the largest domestic bond market participants in Canada, with a dedicated team of seasoned professionals who are experts in their respective areas. The group's investment process is well-defined, thoughtfully evolved, and allows for the systematic construction of portfolios. Customized analytical and quantitative tools complement the portfolio management and risk oversight functions. The group's primary competitive advantage is in credit analysis, an area which leverages the OMERS Fund's strong financial position, long term investment horizons, and ability to restructure assets. Within the Fixed Income & Currency group, the credit team formulates its own independent credit opinions, separate from third party credit rating agencies. In 2008, this marriage of credit opinion with the investment team's insights allowed the portfolios to avert much of the fallout during the credit crisis. The exposure to international markets introduces foreign exchange rate risk to investments. OMERS has a policy benchmark which reduces the volatility in the returns by 50% of the underlying foreign equity investments. This 50% hedge ratio has been chosen based on the expected volatility of the cash flows of the investment, the underlying benchmark of the portfolio and the acceptable level of risk. To keep the policy benchmark exposures for public market access, OCM manages the 50% hedge ratio by rebalancing it on a weekly basis.
The objective of the Quantitative Investment group is to generate a return in excess of a relevant benchmark while controlling the risk exposures of a portfolio against the relevant benchmark. It is our belief that fundamental economic and behavioural factors drive short-term security price movements. Through research we attempt to identify the primary factors that have a direct relationship with these price movements. We construct portfolios using quantitative techniques that will have exposures to these primary factors in an effort to maximize the risk-adjusted return.
The OCM Risk Management group is responsible for bringing an integrated approach to risk management across all of OCM's portfolios. This starts with understanding the investment philosophy and strategies for each of our portfolio mandates. Our approach does not distinguish between internally and externally managed portfolios. Accordingly, we conduct portfolio reviews on both internal and external portfolio managers and apply the same level of rigour and discipline to all portfolio managers. The group conducts initial due diligence on and performs ongoing monitoring of managers selected to run our portfolios. OCM believes that risk is owned at the portfolio level and it is the OCM Risk Management group's responsibility to assist with understanding the risks of OCM investments. To assist in this process, the group utilizes a risk system to measure and decompose risk, and apply stress test scenarios to investment positions held. However, full reliance is not placed on quantitative measurements as OCM believes that qualitative analysis is a critical factor in providing a more comprehensive picture of exposure to investment risk.