OMERS’ private equity portfolio outperforms in 2016

The Canadian pension fund successfully sold several portfolio companies to private equity firms last year.

Private equity was the best performing asset class for Ontario Municipal Employees Retirement System during the year ended 31 December, and it delivered higher returns than the year before, according to its 2016 annual report published earlier this month.

OMERS' private equity portfolio, which had a fair value of C$10.98 billion ($8.17 billion; €7.76 billion) at the end of 2016, generated a 12.6 percent net internal rate of return for the year. In 2015, it returned a 10 percent net IRR.

In 2016, it beat not only its benchmark, which consists of an absolute return benchmark approved every year by the OMERS Administration Corporation board, but also other asset classes, and returned 11.3 percent.

Public investments returned a 9.5 percent net IRR; infrastructure generated a 11 percent net IRR; and real estate marked a 12.4 percent net return.

It also outperformed OMERS' overall portfolio, which generated a net 10.3 percent IRR in 2016.

The strong return in private equity was supported by exits including the sales of Great Expressions Dental Centers to private equity firm Roark Capital Group in September; the sale of baked-goods maker Give & Go Prepared Foods to private equity firm Thomas H Lee Partners in August; and the sale of news distributor Marketwired to Nasdaq in February, OMERS said in its annual report.

The Toronto-based pension allocated 13.6 percent to private equity in 2016, slightly below the 14.7 percent in 2015. Its long-term private equity target allocation is 12 percent.

As part of its preparation for possible US interest rate increases, a weak outlook for Europe and Canada and market uncertainty driving competition for quality assets, OMERS said it will expand its credit, real estate and infrastructure strategies going forward, as well as explore opportunities outside its typical target regions of Canada, US and Europe.

OMERS' private equity exposure to Canada had already decreased notably between 2015 and 2016. The Canadian assets in the private equity portfolio stood at C$3.34 billion, or 29 percent of its total private equity fair value in 2015, but it accounted for 21.6 percent, or C$2.37 billion, of the total private equity fair value in 2016, according to the report.

As of 31 December, OMERS' assets under management stood at C$85.2 billion.