Canadian public pension fund Ontario Municipal Employees Retirement System (OMERS) reported a 4.2% return in 2022, notching up C$4.9 billion (US$3.6 billion) in investment gains.

Net assets at end-2022 were C$124.2 billion (US$91.3 billion), up 2.6% from C$121 billion at end-2021. Over 10 years, OMERS has earned an average net return of 7.5% and adding C$64.4 billion to the Plan. However, it has only exceeded its benchmark by 0.1 percentage point. Due to inflation indexation, its “smoothed” funded ratio (averaging investment returns over five years) dipped from 97% at end-2021 to 95%, although it was still higher than 86% in 2012.

OMERS beat peers such as CPP and CDPQ which reported -5.0% and -5.6% respectively. So far, the average reported return across the sovereign investment universe is -9.7%, as funds were hit by losses on public markets and a high level of volatility in the wake of Russia’s invasion of Ukraine. Although OMERS suffered losses in its equity and bond portfolios, which fell 5.4%, they were offset by returns from its investments in other asset classes: private equity, infrastructure, and real estate.

OMERS is more heavily weighted to real assets than CPP and CDPQ, which were resilient to inflation and volatility. Infrastructure investments gained 12.5% (above the 7.7% benchmark) and real estate gained 13.6% (above the 7.1% benchmark), while private equity investments returned 13.7% (11.2%). Despite this strong performance, the Ontario fund believes markets will shift again in 2023 and is now moving its investments into fixed income to ensure it hangs onto the strong yield performance seen in 2022.

Jonathan Simmons, OMERS Chief Financial and Strategy Officer, said, “Our significant allocations to private investments and focus on short-term credit over long-term bonds protected OMERS from the worst period of market losses incurred by investors since the 2008 global financial crisis.”

OMERS has often been an outlier when it comes to annual returns. In 2020, when the wider industry reported an average 7.7% return on the back of surging public markets, the Ontario fund reported -2.7%. The difference could be explained by its higher level of private markets exposure.

While OMERS may have out-performed peers in 2022, its all-important long-term performance counts is lagging. Québec’s CDPQ reported superior annualized returns over 10 years of 8.0% and beat its benchmark by 1.0 percentage point, adding C$30 billion in value-added. The federal-level C$536 billion CPP achieved a 10-year average return of 10.0% and contributed C$308 billion to the Fund on a net basis. With long-term horizons, pension funds need to bolster multi-year yields to fully fund pensions and OMERS is under pressure to reverse the deterioration in the funded ratio and sustain strong yield performance.

Related funds CDPQ CPP OMERS
Related tags Canadian Funds AuM Returns