OMERS: Fair value write-downs batter private equity portfolio

The Canadian pension's negative returns of 19.5% in public markets and 13.7% in private equity were partially offset by gains of 11.5% in infrastructure and 6% in real estate. OMERS' assets are now valued at C$44bn, versus C$52bn at the end of 2007.

The Ontario Municipal Employees Retirement System posted a net investment loss of C$8 billion (€5 billion; $6.4 billion) for 2008, with infrastructure and real estate gains partially offsetting negative returns in public markets and private equity investments.

The Canadian pension plan, now valued at C$44 billion, posted investment losses of 19.5 percent in its public markets investments and 13.7 percent in its private equity investments, versus gains of 11.5 percent and 6 percent in its infrastructure and real estate investments, respectively, for 2008.

The private equity declines were “unrealised” losses due to fair value write-downs, an OMERS spokesman said.

“Private equity valuations rely to a large extent on public market comparable company valuations,” the spokesman said. “This valuation process resulted in significant unrealised losses in the fair value of OMERS private equity investments.”

The net result was a loss of 15.3 percent, or C$8 billion, for the OMERS Primary Pension Plan in 2008, versus a gain of 8.7 percent, or C$3.9 billion, in 2007.

At the end of 2007, the pension valued its private equity assets at C$3.6 billion, its infrastructure assets, gross of debt, at C$8.4 billion, and its real estate assets, gross of debt, at C$10.9 billion.

“OMERS did not escape the downturn, though we believe we fared relatively well as a result of the performance of our fixed income, real estate and infrastructure assets and our decision not to invest in certain high-risk financial products,” Michael Nobrega, OMERS president and chief executive, said in a statement.

Record losses have been roiling public and corporate pension plans as well as university endowments and other sources of capital for alternative asset managers.  The median performance of public pension fund median was negative 24.9 percent in 2008, while corporate pension plans’ median performance was negative 25.8 percent, according to Wilshire Associates, a consulting firm.

Several large public pensions in the US have also recorded record losses. The California Public Employees' Retirement System, the US’ largest public pension fund, lost more than $80 billion between October 2007 and December 2008. In Pennsylvania, the Pennsylvania State Employees' Retirement System lost $10 billion in value in 2008 and the Public School Employees' Retirement System (PSERS) lost another $20 billion. And in Illinois, the state’s two largest public pension plans – the State Universities Retirement System and the Teachers' Retirement System – collectively lost $17 billion in assets for 2008.

In response, many states are re-evaluating their commitments to alternative asset managers. Last week, PSERS pulled back on hundreds of millions of dollars in planned private equity commitments and earlier this week the Alaska Permanent Fund, the state’s $28 billion national oil fund, pulled back on $650 million in private equity and infrastructure commitments.

OMERS, which directly manages many of its alternative asset allocations via subsidiaries such as OMERS Strategic Investments and Borealis Infrastructure, has not indicated it would be taking similar moves. Instead, the pension has accelerated its exposure to alternative assets by increasing its long-term asset mix target for private markets from 37.5 percent to 42.5 percent from 2007 to 2008.

“We’re getting a better balance between our public and private investments, and although we have experienced losses in 2008, they were lessened by the shift toward private market assets,” Patrick Crowley, OMERS chief financial officer, said in a statement.

OMERS is one of Canada’s largest pension funds, providing retirement benefits to over 390,000 members from the local government sector in the province of Ontario. It has long-term allocations of 10 percent to private equity, 20 percent to infrastructure and 12.5 percent to real estate.