Amid a tough environment, the C$79 billion($59.2 billion; €52.4 billion ) Healthcare of Ontario Pension Plan‘s returns dropped significantly last year, but private equity and other alternatives were strong contributors to a positive overall return.

“Given the challenging investment environment, we are pleased to have been able to produce a positive return,” Jim Keohane, chief executive officer, told Private Equity International.

Overall, the fund returned 2.17 percent in 2018, down from 10.88 percent in 2017. Investment income dropped by almost 78 percent to C$1.7 billion from C$7.6 billion last year. Private equity and other alternatives contributed almost 35 percent of this C$1.7 billion. The drop in investment income was primarily driven by negative returns in its public equities portfolio.

HOOPP’s PE portfolio generated a return of 13.7 percent for the year, compared with 19.6 percent in 2017, according to its annual report.

“We had good realisations in both the funds and the direct and co-investments [portfolios],” Keohane said.

HOOPP’s co-investments and direct investments have steadily increased over the last few years and account for almost 40 percent of HOOPP’s C$9.4 billion private equity portfolio, he added.

The other 60 percent is through limited partnerships predominantly across North America and western Europe, with smaller exposures in Asia and Latin America.

HOOPP makes sure it has co-investment rights with the funds in which it invests. “That has allowed us to see a lot of deals and has enabled us to take what we want, mostly where the deals are too big for the funds,” Keohane said.

“We are a very stable, capitalised fund with a long-term horizon and won’t be forced out of deals because of liquidity concerns.”

HOOPP’s co-investments have been opportunistic, and the biggest direct deal it has made is taking a 20 percent stake in yogurt maker Chobani last year.

High valuations are a matter of concern, and HOOPP is using creative and defensive structures to minimise risk, Keohane said.

One such strategy is to move higher in the capital structure and take a senior debt or convertible debt position.