Our internal mantra is to make sure we can
deliver on the pension promise. Everyone at HOOPP buys into that, and we’re
all focused on making sure we can get that done. Everyone in the organization makes a
contribution to that, and we’re all focused in that direction. Assets grew from $60.8 billion to just under $64 billion, so by about $3 billion dollars. That represents a return of 5.12%. Most importantly, we’ve been able to maintain our fully funded status, which rose to 122%. That means for every dollar of current and future payments that we owe to members, we have $1.22 on hand – more than enough to meet our obligations. In fact, CEM benchmarking tells us we have the highest 10-year return of all pension plans globally. We also have one of the highest value adds of any pension plan globally. Our objective is to make sure we can make those pension payments, so it’s not just investing to grow returns; it’s investing to meet a specific objective. We want to take enough risk to meet our pension obligation, but not too much risk to create undue volatility in the plan that could result in a situation where we can’t make that payment. So, it’s not about maximizing returns, it’s
earning enough return to meet that objective, so that you don’t create excessive volatility. We viewed it as being a very high risk environment over the last year or two. So as such, we were positioned defensively. That may have hurt our returns a bit last year, but as we’ve seen at the start of this year, Canadian markets are down 10%, U.S markets are down 10%, European markets are down 15%, Asian markets are down 20%, and we’re down 1.5%. For us to come out with a 5%+ rate of return in that environment is actually pretty good. It was a very challenging environment, and yet we managed through it quite well, which I think is a good testament to our liability driven investing approach. It’s enabled us to do well, even in difficult markets. I think people are just reacting as if it
was 2008, and it’s not. I think there’s just a typical cyclical downturn in the economy, and the economy always goes through cycles. 2008 was a financial crisis where you had
major financial institutions going bankrupt. Things like that don’t happen very often.
The last time it happened was in the 1930s. I wouldn’t expect that to happen again for quite some time. Our time rises 50 to 70 years, so weak patches at a time like this are time for us to buy assets. We can buy long-term assets at very
attractive valuations. Maybe they’re not going to do great over the next year or two, but over the long run, this is the best time for us to buy. So as long as you have sufficient liquidity and be able to manage that, we have to expect lots of these downturns over the life of the Plan. It’s huge advantages of scale. For example, one of the things we can do as a large pool of funds, so, a $60 billion fund – is investments we can engage in that you couldn’t possibly do. So, we can go out and buy buildings – you can’t do that. You’d have to intermediate that process and pool your funds with somebody else to buy a building, which would diminish your returns. Also, our cost of implementation is much lower because of our scale. We have a lot of negotiating power, so we get the costs down very low. Our total investment costs are about 0.18%, or 18 basis points. The average individual will probably be paying more, around 200 basis points, or 10 times that amount. When you compound that over the life of the Plan, you’re dramatically better off being in a pooled fund. It’s surprising when you do the math on that. You actually end up with half as much money over the life of the Plan. You wouldn’t think it would make that much of a difference, but it does. In terms of the pension payments that go out, 80 cents of every dollar that gets paid out comes from investment returns, and about 20 cents comes from both employee and employer contributions. So, it’s largely funded through growth in the investment portfolio over the life of the members. Our cost of living adjustment is the inflation adjustment we make on pension payments annually. For the last few years, what we’ve done is paid members 75% of the change in the Consumer Price Index. Because of the financial strength of the Plan over the last 10 years, we’ve now been able to improve that and increase that to 100% of the Consumer Price Index. So, pensioners are going to see a bigger bump in their pensions, this year, and going forward, than they’ve seen in the past. Our attention is to try and maintain that at 100% of the Consumer Price Index going forward. One of the great things I get to see, being
CEO of the Fund, I get to interact with our members and I can see what a huge difference that makes in people’s lives. We’re doing something that really allows people to retire with dignity, and that makes a huge difference in their lives. All of our values and promises to members are built off of that. We understand that we’re doing something very important and it does make a difference in our members’ lives and to society overall.