OMERS reports $8B loss as private equity, public markets slide

The Ontario Municipal Employees Retirement System endured an $8-billion net loss on its investments in 2008, but its chief executive stressed Monday that "the main issue here is that our fund is strong."

The loss represents a 15.3 per cent negative rate of return, which OMERS said places it in the top quartile of large pension funds.

"The financial crisis that devastated world markets in 2008 happens once in a lifetime," OMERS president Michael Nobrega commented.

"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."

This contrasts with some other public pension plans, notably the giant Caisse de dépôt et placement du Québec, which releases its results later this week and is reported to have dropped $38 billion in 2008.

A loss this size, amid misadventures in asset-backed commercial paper and currency hedges, would be a 26 per cent negative return to $120 billion for the Quebec-based pension plan.

Average return 6.9%

At OMERS, the 2008 loss left $43.5 billion in assets, following investment income growth $3.9 billion or 8.7 per cent in 2007.

The fund calculates a five-year average rate of return of 6.9 per cent, which it said exceeds its funding requirement.

Its year-end surplus on a going-concern basis shrank to $3 billion from $6.2 billion, and chief financial officer Patrick Crowley said the solvency ratio sagged to 90 per cent — meaning that if OMERS were wound up today, its assets would cover only nine-tenths of the pension benefits it has promised.

Crowley said it's up to the OMERS board to decide how this deficiency will be covered and whether additional contributions will be required.

OMERS, responsible for pensions for 390,000 current and former employees of local governments in Ontario, said it had gains in 2008 of 11.5 per cent in infrastructure investments and six per cent in real estate.

But its holdings in private equity fell 13.7 per cent and investments in public markets slid 19.5 per cent as global stock markets fell 30 per cent or more.

Crowley said OMERS has reduced its investments in bonds and stocks to 60 per cent of its portfolio from 82 per cent in 2003, "and although we have experienced losses in 2008, they were lessened by the shift toward private-market assets."

OMERS emphasized that it "avoided significant exposure to certain high-risk investments such as subprime mortgages, collateralized debt obligations and over-leveraged assets."

CEO Nobrega credited this to "a rigorous credit process" in all divisions of the 1,800-employee fund, whose operations include Oxford Properties and Borealis Infrastructure.

He added that the economic crunch is putting extreme pressure of small pension plans and he expects consolidation to pick up speed, with OMERS taking over management of more pensions at universities, transit systems and other public enterprises.

At OMERS, "whatever happens this year, it will not affect the long-term viability of this pension fund," Nobrega said.

"Our members can remain confident their pensions are secure."