OMERS Reports 2020 Financial Results: paying pensions over decades means a long-term approach
2020 was dominated by the COVID-19 virus and its impacts across the globe and here in Ontario. Many OMERS members served on the front lines and provided essential services to our communities across Ontario. Many continue to do so. We thank them and are proud to come to work every day for them.
The effects of the global COVID-19 pandemic negatively impacted our portfolio in 2020, particularly our business- and consumer-facing investments, contributing to an investment return net of expenses of -2.7% for the year. Widespread lockdowns in investments that included retail properties, and the transportation and entertainment sectors explain more than half of our shortfall to our benchmark in 2020.
“We are a long-term investor that pays pensions over decades, and with a strong team and strategy in place, this single year will not define us,” said Blake Hutcheson, OMERS President and CEO.
“Over the ten-year period leading up to 2020, OMERS investment portfolio performed well by any measure, averaging an annual return of 8.2%, and in 2019 alone OMERS delivered 11.9%. We are active investors and asset managers with high-quality assets diversified globally and we believe in the strong investment future that our portfolio represents for over 500,000 members and our more than 1,000 employers in Ontario,” he added.
Three factors primarily explain the performance gap relative to our benchmark:
Widespread lockdowns severely affected the business- and consumer-facing investments in our portfolio, including our investments in retail properties and in the transportation and entertainment sectors. These lockdowns significantly impacted our returns in real estate and private equity and explain more than half of the overall performance gap;
OMERS portfolio of high-quality public equities includes significant allocations to dividend-paying financial services and energy businesses. These sectors lost value in 2020, and did not fully recover during the market rally in the latter part of 2020. The impact of sector allocation in our public equities contributed another 20% to the overall performance gap;
We saw significant market stress in March and April. At that time, we took a number of actions proactively to enhance and protect the Plan’s liquidity from the possibility of further adverse market events – including reducing our foreign currency hedging positions to mitigate against the risk of significant cash outflows, had the Canadian dollar continued to weaken. These prudential actions achieved their objectives, though they resulted in currency losses, as the Canadian dollar appreciated after we reduced our hedges. This activity contributed about 20% to the overall performance gap relative to our benchmark.
OMERS funded status on a smoothed basis remains at 97%, with a lower discount rate of 5.85%. “Over the past five years OMERS has lowered its discount rate by 40 basis points, to improve resilience to risks we see on the horizon,” said Jonathan Simmons, OMERS CFO.
We are making the appropriate changes to better position our platform for the future. Pension payments continue as usual and OMERS paid pension benefits of $5.1 billion in 2020 to more than 180,000 members.
“As announced early in January we are entering a new year with a refreshed senior team to shape our way forward,” said Mr. Hutcheson. “Collectively this new team brings deep experience from inside and outside of OMERS, multiple countries, perspectives and backgrounds, and it achieves much greater gender diversity. I would confidently put this new team up against any other to deliver on OMERS commitment to our members in the years ahead.”
“The fundamentals of our strategy remain sound. In any year, regardless of result, we would evolve our approach to adapt to current realities. Given the disruptions we experienced this year, we have made a number of important adjustments that lend additional strength to our approach,” said Mr. Hutcheson.
As we look to the future, we are making key decisions within our investment portfolio that enhance diversification, growing our exposure in new economy stocks, high-demand sectors in real estate, profitable investments with lower carbon intensity and more. These changes will help to position the Plan strongly to capitalize on the opportunities before us and to deliver on our commitments to members.
Detail on further activities will be provided in our Annual Report, which will be issued later today.
Further detail on our portfolio:
Net Investment Returns for the years ended December 31, 2020
2020
2019
Public Investments
Bonds
1.1%
3.6%
Credit
(4.3)%
8.0%
Public Equity
1.5%
20.3%
Total Public Investments
(3.1)%
16.4%
Private Investments
Private Equity
(8.4)%
4.6%
Infrastructure
8.6%
8.7%
Real Estate*
(11.4)%
8.3%
Total Net Return
(2.7)%
11.9%
Asset Mix as at December 31, 2020
2020
2019
Fixed Income
Bonds
6%
6%
Credit
17%
16%
Equities
Public Equity
31%
29%
Private Equity
14%
14%
Real Assets
Infrastructure
20%
19%
Real Estate*
14%
16%
Short-Term Instruments
-2%
0%
Total
100%
100%
Net Assets
$105 billion
$109 billion
* For disclosure purposes, we present our investments and our performance by asset class. As such, Oxford Properties’ real estate credit business and public equity investment into HKSE-listed ESR Logistics is presented under ‘credit’ and ‘public equity’ respectively, and not in ‘real estate’. Including the performance of its credit business and investment in ESR Logistics, the Oxford Properties 2020 net return is -6.8%.