Ontario’s Direct Investment Model Helped ‘Buffer the Impact’ of Global Market Downturns

Strong returns in the system’s infrastructure and private equity strategies pull it out of negative territory for year.

Despite all major public markets indices being at a lower point last December than where they were at the beginning of the year, the Ontario Municipal Employees’ Retirement System (OMERS) pulled through with a positive 2.3% return, or $2.2 billion, for 2018.

The core of the diversity in its portfolio is the strength in the system’s private markets strategies, which are separated between OMERS Infrastructure and OMERS Private Equity. Together, the two generated a 10.3% return in 2018, with about $10 billion deployed in new investments in the strategies during that time.

“A return of 10.7% from private investments and positive returns on our credit portfolio buffered the impact of public markets in a year when all major indices were lower compared to where they were at the beginning of the year,” said Michael Latimer, chief executive officer of OMERS.

The system improved its funded status to 96%, which “primarily reflects our five-year net investment return of 8.1%,”said Jonathan Simmons, the system’s chief financial officer.

OMERS’s infrastructure program is a prominent standard-bearer of the direct investment model that many Canadian institutional investors employ, and follows a robust, active strategy that holds many different high-profile assets in its portfolio, including the London City Airport, Chicago Skyway, Port of Melbourne, and Thames Water. The team closed on at least five different acquisitions in 2018,a feat considering the illiquid, expensive nature of the asset class. OMERS Infrastructure also recently announced its first foray into the Indian infrastructure market, which is poised to generate lots of attention from other investors since the need for physical assets to support the growing population is significant.

OMERS Private Equity equally closed on five acquisitions during 2018, according to its website. The $11.5 billion (net) portfolio is supported by over 50 investment professionals who specialize in direct investment strategies.

The system’s net returns and asset mix in 2018 are summarized below:

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