Evolving our Capabilities and Business Model

We expanded our global footprint, invested in our operations, and built our risk- management capabilities to better meet our pension obligations.

In early 2018, we opened a new investment office in Singapore to explore opportunities in the Asia-Pacific Region, with investment teams from all our asset classes. These teams have been actively connecting locally to further develop relationships in the region. With investment offices now in cities across North America, the U.K., Europe, Australia and Asia, OMERS is well-positioned to apply deep knowledge of local markets around the world, as we seek out the best opportunities to meet our pension obligations.

Our strategy of building a diversified portfolio of high-quality investments requires highly skilled talent with knowledge and experience to deliver strong, long-term returns. We believe that in-house management generally creates better value than external management. We selectively use third-party managers to obtain access to specialized investment products and markets.

Over the last several years, we have increased global diversification of the portfolio, expanded asset allocation into private assets and introduced credit as a new strategic asset class. The objective of these decisions is to optimize investment returns. In doing so, we accept the related costs, which will vary depending on many factors, including actual performance results and asset mix.

Internal investment management expenses were $540 million in 2018, compared to $409 million in 2017. Increased investment expenses are mainly driven by expanded asset allocation to, and strong performance in our private assets, particularly in private equity, resulting in higher pay-for-performance costs. This increase was partially offset by lower compensation costs in other areas as a result of losses in public investments and the Plan’s lower overall return.

In addition to investment management expenses, the Management Expense Ratio (MER) includes external manager performance and pooled fund fees of $99 million ($83 million in 2017), which were higher due to increased allocation and strong performance. Together, these items represent an MER of 66 basis points, compared to 55 basis points for 2017. Over the long term, when OMERS meets benchmark performance objectives, we are targeting our MER to be not more than 50 basis points.

Pension administration expenses were $93 million, representing a Cost Per Member (CPM) of $207 in 2018, compared to $85 million, or a CPM of $195 in 2017. The increase was due to the impact of organizational changes and advancing technologies, including cybersecurity. We expect that our CPM will increase in the near term as we phase in the redevelopment of our pension administration platform. We remain focused on deliberate expense management and the value of every dollar in the Plan.

Overall, we strengthened our approach to risk management. Through the Comprehensive Plan Review, we advanced our insights on the risks and challenges facing the Plan and identified possible long-term solutions. OMERS increased awareness of risk across the organization and reinforced the importance of a robust risk culture. We also continued our ongoing work to strengthen cybersecurity controls. As risks evolve, we continue to build our capability to anticipate, prepare for and prevent potential negative impacts.