Terms Explained: Investing
Explaining some common investing terms
Madeleine Cavadias, Associate Director, Private Equity
Kelly Bragg, Director, Financial Reporting
November 19, 2021
Reading Time: 3 minutes
In the final installment of our ‘Terms Explained’ series, we explain some key terms that we use when we talk about OMERS global investment activities. We make multiple investment-related announcements every year – either to signal new investments in assets or the sale of current holdings. Here we explain what some of the terms mean.
An asset class is a grouping of investments that are similar in nature, characteristics and risks. OMERS invests in a number of asset classes, including fixed income (bonds and credit), equities (public equity and private equity), and real assets (infrastructure and real estate) – definitions for these are below.
A bond is a form of fixed income. It is a loan from an investor to a company or government. The borrower uses the money for operations, investments, and other purposes, and the investor receives interest (fixed or variable) on the investment at regular intervals over a period of time. Bonds can be traded (for example, bought and sold) amongst investors.
Credit investments are another form of fixed income. They have either fixed or floating rate interest payments, and they can be ‘secured’ by other assets (like a house secures a mortgage).
Public equities are securities that represent ownership in a public company – that is, securities listed on recognized stock exchanges (for example, the Toronto Stock Exchange). Public equities include Canadian and global equities, commodities, equity derivatives, equity pooled vehicles such as exchange traded funds (ETFs), hedge funds, closed end funds and publicly traded real estate investment trusts (REITs). These companies are subject to formal regulations and governance guidelines. Public equity income is typically produced either through ‘dividends’ or an increase in the value of securities from the original purchase price (for example ‘capital appreciation’).
Similar to public equities, private equity is the ownership of equity or equity-like securities in companies – but instead of being listed on a stock exchange, private equity investments do not generally ‘trade’. Our private equity asset class includes venture capital investments, which is the ownership in small, newly established start-up companies founded around an innovative solution or concept. Then, as a start-up grows, it could decide to access additional private investment to help it expand further; this is sometimes called growth equity investing. Private equity income is typically generated through capital appreciation when the investment is sold.
This asset classes groups together investments in sectors that include utilities, telecommunications, power stations, ports, airports, bridges, roads. We expect our infrastructure investments to produce predicable and stable cash flows and some value increases. Our OMERS Infrastructure team manages the infrastructure portfolio; you can learn more about what they do .
This asset class typically involves the buying and selling of buildings and land, as well as renting space for residential, commercial, industrial, logistical or other purposes. Oxford Properties is the real estate arm of OMERS. Oxford is active across four continents, representing approximately 150 million square feet of commercial space, 3,000 hotel rooms, 10,000 residential units and a substantial credit portfolio. You can learn more about the team and what they do .
Portfolio companies are firms in which we have directly invested, typically through our infrastructure and private equity investing activities.
Diversification (or diversify)
Asset mix diversification is used to help mitigate long-term risk and deliver long-term returns. Rather than concentrating assets into a single investment, or geography, or asset class, we aim to invest in a variety of investments which do not correlate to each other. This way you avoid having ‘all your eggs in one basket’. If the portfolio were to experience unfavourable returns in one investment, it is more likely to be balanced or offset by favourable returns on other investments. As such, a diversified portfolio is more likely to create stabilized investment returns. OMERS investments are diversified by these categories (among others):
Asset class: we invest in a variety of asset classes, as mentioned above
Economic sector: we invest in a variety of sectors, such as healthcare, technology, and many others
Geography: we invest in a variety of geographies, including Canada, the United States, and in Europe and across Asia-Pacific.
This refers to an investment approach that specifically incorporates frequent review and analysis of rapidly shifting environmental, social and governance (ESG) factors. As an investor, we have an important role to play as the world transitions to a lower carbon economy. Our vision is to be a leader in sustainable investing, to better protect and generate superior value for you – our members – over the long term. You can learn more about our work in this area in this , published a few weeks ago.
Kelly Bragg is Director of Financial Reporting. She joined OMERS in September this year, and is based in Toronto.