The Pension Blueprint podcast video transcript 

Episode 7: Proudly Canadian, powered by your pension

Celine Chiovitti (VO) Hello again and welcome to another episode of The Pension Blueprint. I'm delighted by my next conversation with OMERS very own Michael Hill. Michael is the Executive Vice President and Global Head of OMERS Infrastructure. In this episode, you'll hear him explain how infrastructure investments are generating steady, long-term returns that are crucial to fulfilling the pension promise. Everything from airports to the power grid, to roads, and fiber optic cable. These elements are truly essential to every Canadian's life and our ability to go to work and come home every day. I'm so happy Michael is here to talk us through how OMERS is playing a part in all of it. Without further ado, here's my conversation with Michael Hill.
(gentle music)

Celine Chiovitti: Hello Michael Hill and welcome to The Pension Blueprint. Hello Celine. Thank you very much for having me. I'm so happy to be here. Well, I'm happy to have you here. I've been really looking forward to this conversation to get into the mind of such a brilliant investor and leader at OMERS and to really peel back the layers around how we invest in order to pay pensions for life. So I'm going to get right into it and I'm going to start with a really easy question. You are the Executive Vice President and Global Head of Infrastructure. What does that job entail?

Michael Hill: Well, first of all, I want to just say how much I'm happy to be here and how much I enjoyed being with you a couple of weeks ago. It was so much fun. Yeah, we went up to Barry, which is my hometown. Yeah. And I got to meet the chief of police and the chief of the fire department and some of the people from the city of Barry. It was a great day. We met a bunch of our members and it was a great way for me to connect with, you know, all these important people that we work for. So when you ask me what my job is about, my job is about supporting those members and that's what makes it such a privilege for me to be here and doing what I do. What I do day-to-day is I help to invest a portion of the fund's capital into the infrastructure investment space.

Celine: Yeah. The day was so much fun in Barry and just seeing you in that element because I'm used to sort of seeing you again in a different space with a bunch of investors making us money, which is what we need you to do. But seeing you in that room and having it really resonate that these, that's, those are your roots. It was really clear that you're here for purpose. I'll get into more of that a little bit later. Just going back to your infrastructure, how big is your team? How much money do you invest? Where are they located? That sort of thing.

Michael: Yeah, the way I think about infrastructure is I believe that societies and the economies that are part of societies are built on the basic building blocks of infrastructure: roads, airports, electricity, generation and grids, phone networks, mobile networks, fiber networks. We invest in those basic building blocks that create the foundation for society and the foundation for economies. In our portfolio, for example, we have some of all of those things. We have very large investments in electricity generation, including our large investment in Bruce Power here in this province, which provides electricity for about a third of the province, a third of our members. We have ownership stakes in airports around the world. We have ownership stakes in ports around the world. We invest in fiber networks here in Canada as well as in Europe. We own cell phone tower networks in Australia. We have a very diversified portfolio of assets that make up some of those basic building blocks for society. The infrastructure program is the largest investment program at OMERS. We're investing roughly $35 billion of the fund's capital. We have a team of just over 100 people and we get the support of another 25 or 30 people on top of that. We have a big team and we have a global team. We have a big group of people here in Toronto. We also have offices and people in New York, London, Sydney, Singapore, and a group of people in Amsterdam as well. So it's a big global team.

Celine: It's a big global team. Do you get out to see everybody and connect and how do you stay in tune with everybody that's working on your team?

Michael: Yeah, well, I mean, technology makes that a little easier than it used to, but I do make a point of getting on the road a lot. Last year, I think I did eight trips to Europe. I did a couple of trips to Asia and I'm up in, as you know, I'm based in New York, but I'm in Toronto probably two weeks a month. I'm here in Toronto this week because we had our global offsite and that was an opportunity for that big group of people who work for OMERS Infrastructure to come together. The theme of the conference was connections and collaboration. It really emphasizes the point about just, you know, our team staying connected.

Celine: Yeah. That's so great. So you are responsible for the infrastructure part of the investments. I just, you know, reiterate kind of how we invest, and correct me if I'm not saying this correctly because I come from the pension side of the house, but we invest, we've got about $130 billion in assets, $230 billion of assets under management. Generally speaking, about half of that is invested in the public markets and the other half in the private markets between infrastructure, Oxford real estate, and private equity. So when you think of it in that context, can you explain to our listeners and to our members how infrastructure plays a role in the broader strategy and why, quite frankly, long-term investment plans, things like pension plans, really does serve and make a lot of sense in this type of environment?

Michael: Sure. Well, that's a big question and just for the sake of clarity, the infrastructure team is part of that half that's in private markets. Let me just step back a little bit and maybe provide a little bit of context. As you said, we have a very large pool of capital that we invest on behalf of our stakeholders. I think it's conventional wisdom that the best way to earn long-term returns in a prudent manner, and prudent by which I mean with the right level of risk, is to have diversification. The infrastructure portfolio is part of the diversified portfolio that makes up all of OMERS. The part that we invest in, as I said, is a private asset class, which means we're not investing in stocks or bonds; we're taking stakes in either private companies or we're taking stakes in assets or projects. Those projects are part of an asset class that typically has a very long-term timeframe, has a relatively stable cashflow profile, and typically pays dividends to us. So it generates cash. So you've got cash coming in, cash coming in, often times has inflation protection. So it's buffered against changes in the inflationary environment and it's designed to provide attractive returns over long periods of time in a very stable manner.

Celine: It's so interesting because we often talk about the value we bring to our members from we pay pensions and, you know, allow them to live in dignity when it comes time to retire. But beyond that, we talk about the social wellbeing and the social value and economic value we bring beyond that to communities across Ontario. What you're talking about really is part of that, you invest in things across Canada and abroad to really help people survive and help communities run. So it's really interesting when you see it all come together in that way.

Michael: Well, thank you. And I have to say, as an investor, you know, our primary objective is to earn good returns and to fulfill the fiduciary obligation we have to our members. If we can do that in a way where we also feel really great about the things we're investing in and they can provide some of those societal benefits, I think that's what makes working at a place like OMERS so interesting and so fulfilling. For our program, we're looking for returns that meet a certain risk threshold. That risk threshold is designed to provide some of the stable, long-term, yield-oriented return attributes that we get from the infrastructure asset class. So it's a combination of returns with other characteristics of probably you'd consider more stability. At the same time, we are as part of OMERS, very focused on the role we play in the net zero and climate action plans for the fund. We are also keeping an eye on the opportunities that exist for us to invest in areas that provide some of that as part of an attractive return profile as well, like renewable energy.

Celine: So when we talk about, and I will, I'm going to address the elephant in the room. There's been conversation and, you know, we've heard some rhetoric around, you know, pension plans, Canadian, some of the big Maple eight should be investing more in Canada. We have a lot of money invested in Canada. You talked about Bruce Power being a really huge, big significant infrastructure development in Canada. What would need to be true, first of all, do we want to invest more in Canada and what would need to be true in order for us to do that?

Michael: Yeah, well, I mean the punchline is we'd love to invest more in Canada, but let me just step back and talk about why we invest in Canada and why we like investing in Canada. We like investing in Canada because Canada is one of the best economies in the world. It has a very attractive underlying economy with strong industries and a strong growth profile. It has an incredibly educated and productive workforce and it has a very strong rule of law where we believe you can sign contracts and we can benefit from the sanctity of those contracts. Those are the characteristics that every investor wants in any jurisdiction that an invests in. So Canada is a great place for investment, not only for OMERS, but for anyone looking to earn attractive risk-adjusted returns as we are. So that's the first reason Canada is just a great place to invest. The second reason is, you know, we're investing a pretty substantial pool of capital and investing to earn returns is a pretty competitive business. One of the reasons that we really like investing in Canada is because we believe we have an edge here. We believe that we have, because of our position in the market and because of our relationships in the business community, because of our understanding of the country, we believe that gives us a competitive advantage relative to other investors investing in Canada. So it's for those two reasons that we love investing in Canada.

Celine: That's great. I would love to talk to you a little bit about your leadership as well. I mean, you are an accomplished global leader. You talked a little bit about, you know, the purpose and part of the reason you're here, and I don't know, my question to you really is why OMERS, why pension plan, why you could be anywhere in the world investing, why does this plan work for you?

Michael: That's a great question and thank you for asking. Yeah, I've been very lucky. I grew up in a small town, two small towns in Ontario. I got to benefit from going to one of Ontario's great universities and becoming trained and interested in the finance area. I then spent a very big part of my career working in global jobs and global financial institutions. I got a lot of great experience, met some really interesting people, built a terrific network and then reached a point in my career where I just wanted to do something different. I wanted to continue to be challenged, I wanted to continue to have the intellectual challenge of the finance industry and to be able to be an investor and, you know, people who want to be investors want to have capital to invest and obviously, places like OMERS have a lot of capital, so that's very attractive. But at the end of the day, what became really interesting, Celine, was the opportunity to be part of the mission. There's a lot of different places you can work in and a lot of different places around the world that you can work, but having the opportunity to come home in some way.

Celine: Yeah.

Michael: And be part of something a little bit bigger than what I've been part of in the past. The strength of the underlying mission that we have here at OMERS to support the pension promise, that was a big part of what made this interesting for me.

Celine: I think that's so great. And I again, saw it when we visited Berry, and I know you still have family there.

Michael: I do.

Celine: And it really felt like coming home for you.

Michael: And my father and my sister are both in Berry and they're not part of OMERS. They're part of another Ontario, two other Ontario pension funds. So the support that the pension system in Canada provides for my family is very real and something I really wanted to be part of.

Celine: That's great. So we talked a little bit about investment in Canada. We also invest globally.

Michael: We do.

Celine: We have to invest globally in order to earn those returns. Can you talk a little bit about that?

Michael: Yeah, I mentioned earlier about our offsite and that we have people who've attended from all around the world and the many offices we have globally. As you said, Celine, really the objective there is we are investing a large pool of capital, not just as infrastructure, but OMERS in general and in a very competitive marketplace. I think in order to achieve these returns, and not just at the infrastructure level, but at the fund level, I think it's important to be able to look at many different markets in order to find the best opportunities. That's what we're doing. Our belief in infrastructure is it's important to have boots on the ground.

Celine: Yeah.

Michael: We think that we're likely to find the best opportunities and strike the best deals when we have people in the area, in the regions, in the countries representing us there. I think at the end of the day, it's all about creating a diversified portfolio and recognizing that we don't want to have everything invested in one asset. We don't want to have everything invested in one sector. We don't want to have everything invested in one country. We're trying to put together a diversified portfolio and we think that's the best way to earn attractive risk-adjusted returns over the long-term.

Celine: Great answer. Great answer. I have one more question for you before I get into a few fun questions. You talked a little bit about OMERS commitment to climate and our net zero. We've got a climate action plan, you know, with a line in the sand that says we will be totally net zero by 2050, infrastructure that really involves infrastructure shift. Can you talk a little bit about how you're thinking about that? How are you working with your portfolio companies? What does that mean to you?

Michael: Yeah, it's a great question and today, it's a very complicated question because we've seen some people move away from some of their net zero commitments recently. I think the good news is, as you know, Celine, from an OMERS perspective, we're I think quite on track and maybe even a little bit ahead of the game and the good news, or I'm pleased to be able to say, that infrastructure plays a big role in that. Obviously, through our investment in Bruce Power and our investments in the renewable energy space, we have a very large investment in the United States. We're investing in energy assets in other parts of the world. I think we're really on the cutting-edge of driving energy production, electricity production that's much cleaner than it has been in the past. As I said earlier, we're very focused on the many aspects of the criteria for our investments and continuing to focus on doing our part for our climate action plan and for the net zero position is very important to us. And I think the really great news is the fact that we haven't pulled back is because we have conviction in what we're doing in order to be able to make money for the plan. It's not getting caught up in the rhetoric and the politics out there, but really doing what we think is the right thing to do as a fiduciary responsible to the plan and then ultimately to our members.

Celine: Yeah, I agree.

Michael: So, I'm impressed with all the work that you've been doing in that. We have, as part of our very large portfolio, we own a number of companies or we own stakes in a number of companies. As you know, Celine, we have a team in the infrastructure group. It's led by a senior person who's got many years experience in the ESG area. We're trying to do also, in addition to what we invest in, we're trying to work with our portfolio companies to drive initiatives around ways to be more focused on conservation, ways to be more focused on their own carbon footprints and how each of our companies, if they're not a renewable energy developer or they're in more conventional industries, what they can do to become more efficient from a green perspective.

Celine: Yeah. You have more power, more influence when you're part of the solution than when you just sort of deinvest in it.

Michael: That's a great way of saying it. I agree.

Celine: Okay, a few fun questions just so people can get to know you a little bit better. You ready?

Michael: Of course.

Celine: First thing you do in the morning.

Michael: First thing I do in the morning, I shave every day.

Celine: There you go. That's important.

Michael: Every day.

Celine: Every day.

Michael: And I have a very hard time with my two boys.

Celine: I'm now noticing how clean shaven you are. Your two boys don't—

Michael: Someone's told me that CEOs shave every day.

Celine: There you go.

Michael: So I started—

Celine: So you started shaving when you're how old?

Michael: When I was a teenager.

Celine: There you go. I love that, you saw yourself as a teenager. I love that. It's Sunday morning, you wake up in your place in New York City or outside of New York, you have all day, no commitments. What are you doing?

Michael: Well, I get up in the morning and have a cup of coffee and on a Sunday, I will typically do the New York Times crossword puzzle. Get a little bit of exercise and in the summer take advantage of the nice weather and be outside. But, you know, I'm at a stage in life where you reflect on how you've spent your time.

Celine: Yeah.

Michael: And I've chosen to spend my time, a lot of time with work, which I love. Most weekends and Sundays involve doing some work and then I've spent a lot of time with my family and so we take advantage of any opportunity we can to be with our family and our kids. I've been happily married to the same lovely woman for 32 years.

Celine: Did you meet her in Berry?

Michael: I met her at Western actually.

Celine: Oh, there you go.

Michael: Yes, yes, Celine.

Celine: I love that.

Michael: We were in college together.

Celine: That's great. Favorite restaurant and what's your order at it?

Michael: Favorite restaurant? There's a nice little French restaurant on the Upper East Side of New York and I typically get steak-frites.

Celine: Oh, I love a good steak-frites.

Michael: Yes, and a nice glass of red wine.

Celine: Oh, do you get dessert?

Michael: Too often.

Celine: Yeah. There, there you go.

Celine: Okay, final question. You have 48 hours to go anywhere in the world, excluding travel time. Where are you going? What are you doing? And who are you taking with you?

Michael: Easy question. I'm at the end of my dock on a lake in Ontario, which is how I get to spend my summers. It's one of the great fringe benefits of working for OMERS is I get to spend a lot of time in this beautiful province, in particularly in the summer.

Celine: It's great here in the summer.

Michael: It really is. You mentioned that, you know, I had a lot of experience in different countries and it's been a real, I've been very fortunate. I've lived and traveled to many places, not all places around the world, but many places. I consistently am of the view that in the summer when the sun's shining, the skies are blue, there's a nice breeze, a lake in Northern Ontario is about the best place in the world.

Celine: There's no place like home. There really isn't. That's so great. Thank you. Great way to end our episode. Thank you so much, Michael.

Michael: Thank you for having me.