Private markets lift OMERS after tough year in equities

Strong private equity returns helped to offset negative performance in public equities, leaving the Canadian pension fund with a 2.3% overall return.

Private equity posted its strongest returns in five years for the Ontario Municipal Employees Retirement System last year, helping to offset steeper losses suffered in a volatile year of public trading, the Canadian pension said in annual results published this week.

Investments in private equity generated 13.5 percent in 2018, up from 11.1 percent in 2017.

Investments in private equity, real estate and infrastructure generated a combined 10.7 percent last year, down by nearly a percentage point from 2017 but in line with returns those asset classes have generated for OMERS over a five-year period. The pension’s private markets exposure offset losses from public equities that amounted to 8.3 percent.

OMERS still grew its portfolio by C$2.2 billion ($1.67 billion; €1.47 billion) in 2018 to reach C$97 billion and a funding level of 96 percent, but that sets a slower pace than the C$6.25 billion of yearly growth the pension fund has averaged since 2014. The total portfolio returned 2.3 percent, far less than 11.5 percent in 2017 and its five-year average of 8.1 percent.

A spokeswoman for OMERS told sister title Infrastructure Investor in an e-mailed statement that returns from private investments and a “positive performance” of 3.1 percent from the pension’s credit portfolio helped limit losses from public equities.

“Markets move in cycles and this was a year where equity markets, in particular, were very weak towards the end of the year,” the spokeswoman said.

Another Canadian pension fund, Caisse de dépôt et placement du Québec, reported a tough year for public equities. Last week, CDPQ said in its annual results that its equity markets portfolio returned negative 0.9 percent, while private equity returned 16.6 percent. Real assets, including real estate and infrastructure, returned 9 percent.

In 2018, infrastructure returns for OMERS hit a four-year low at 10.6 percent, less than the 12.3 percent generated in 2017 and 11 percent generated in 2016. Real estate also fell from 11.4 percent in 2017 to 8.7 percent last year. Both asset classes now account for 18 percent each of the pension fund’s total portfolio.

OMERS declined to say whether it would increase or keep in place portfolio and return targets for infrastructure and real estate.

OMERS’ private equity investments in 2018 included the acquisition of talent acquisition and management services company Alexander Mann Solutions for an enterprise value of £820 million ($1.1 billion; €954.8 million), and Paradigm Outcomes, a provider of complex and catastrophic medical management to the US workers’ compensation industry.

It also agreed to sell auto body repair and paint shop Caliber Collision Centers to Hellman & Friedman, and long-term post-acute care technology provider MatrixCare Holdings to ResMed Operations for $750 million.

In 2018, OMERS opened an office in Singapore, its first in Asia, indicating the region will be a growing area of interest for investments going forward.