OPTrust: Under scrutiny

Finding the right person to run a multi-billion dollar public pension system with a big allocation to private equity and other alternative investments is not an easy job. Just ask the Ontario Public Service Employees Union Pension Trust.

In November, the pension system hired William Hatanaka, former group head of wealth management at TD Bank Financial Group, as chief executive officer. The appointment ended a seven-month search to replace former CEO Stephen Griggs, who was fired last April in rather acrimonious circumstances.

A new page turned, then? Not quite. There remains a substantial amount of unfinished business between OPTrust and Griggs – in the form of an unpleasant legal dispute.

In June, Griggs filed a lawsuit against the $14 billion pension system claiming wrongful dismissal and seeking more than $2 million in additional compensation.

OPTrust hired Griggs as its first-ever CEO after a strategic review assisted by McKinsey recommended revising the executive structure of the pension system. But he only lasted just under 11 months before being terminated.

Griggs claims that the management structure at OPTrust was “fundamentally dysfunctional” and that he was recruited as its first President and CEO to “introduce normal business and governance practices”, according to legal documents.

After Griggs introduced reforms, many of which “sought to limit the powers and financial largesse of OPTrust’s Private Markets Group”, members of the PMG “embarked on a bad faith campaign to discredit and ultimately terminate Griggs’ employment in order to put a stop to his reforms”, the documents allege.

Griggs claims that the PMG had a reputation for “lavish spending”, including “several million dollars per year on travel and entertainment”.

However, OPTrust argues that Griggs’ employment was terminated because of issues including “incompetence” and “breaches of fiduciary duty” – and to prevent him “from further acting out his personal vendettas”.

In early 2012, Griggs audited two members of the PMG in relation to their expense submissions, which the pension system claims had already been “vetted and reviewed by the manager” of both individuals. What’s more, the fund says, “the costs of the investigation into the expenses were grossly disproportionate to the amounts actually requiring further consideration”.

The pension system further claims that Griggs’ dismissal was due to him directing the PMG to meet with representatives of Investeco, Canada’s first environmental investment company, of which Griggs was previously chairman, “for the purpose of determining if there would be an opportunity for the PMG to cooperate with Investeco”.

The good news is that despite all this turmoil within OPTrust’s PMG, the pension system’s private equity portfolio generated a return of 11.3 percent in 2011. OPTrust has now increased its target allocation for private equity to 15 percent, up from the previous target of 10 percent, according to the system’s 2011 annual report. “Year to date, the returns have been outstanding,” chief investment officer Morgan Eastman told Private Equity International in November.

So how is Hatanaka feeling about leading OPTrust into 2013 and beyond? “It’s early days; but what I can tell you is that I’m excited by what I see in this organisation and its prospects,” he says.

Let’s hope the feeling turns out to be mutual.