While a 55 per cent allocation to Canada was positive for the pension fund, Michael Wissell explains why risk-return profiles, not mandates, will keep pension funds invested in Canada
Healthcare of Ontario Pension Plan (HOOPP) announced its returns yesterday. Amidst a still-uncertain market the plan managed to deliver a 9.38 per cent return for 2023, bringing net assets up to $112.6 billion, meaning the plan is 115% funded.
Returns by asset class for the plan were almost entirely positive. Private and public equities were the two highest sources of return at over 15 per cent each. Private credit returned 9.33 per cent, infrastructure returned 8.17 per cent, fixed income returned 4.28 per cent and credit returned 4.55 per cent. The only negative position for the pension fund was real estate, which fell by around 6.50 per cent as markets adjusted to higher capital costs.
Michael Wissell, Chief Investment Officer at HOOPP explained how those returns fit into the wider goals of HOOPP and what plan sponsors can take from them. He outlined the role that HOOPP’s Canadian allocations played in that, and addressed some of the growing calls for greater Canadian investment by Canadian pension plans.
“We did well at over 9 per cent for the year, but it was really a bunch of singles and nobody stubbing their toes, which combined for a good, if not great, result,” Wissell says. “We’re trying to earn a real rate of return of just over 4 per cent for the plan, so this is above our required rate. That brings us to the most important number for a pension plan which is our funding status, 115 per cent leaves us very well and fully funded, which is the goal of the investment management team, because we’re not in the money management business, we’re in the pension delivery business, and that’s not quite the same thing.”
Wissell explained that the HOOPP pension fund added a dedicated 5 per cent allocation to private credit in 2023. While they had been using private credit for various initiatives and projects outside of the policy portfolio, 2023 was the first year that a dedicated segment was included. The asset class outperformed both the credit and fixed income sleeves of their fund in 2023, justifying its integration in the policy portfolio.
HOOPP also highlighted their Canadian allocations in the announcement of their returns. The policy portfolio holds a roughly 55 per cent allocation to Canada. Wissell says that Canadian exposure was a core component of their total return, with Canadian assets delivering solid risk-return profiles, not to mention liquidity and currency exposure in the same denominations as their pension payouts.
However, earlier in the month an open letter from Canadian business leaders called on Canada’s pension plans to invest more heavily in Canadian public equities. Without explicitly addressing the letter, Wissell highlighted the reasons he and other pension fund managers invest in Canadian equities and Canadian assets. He emphasized what he expects will continue to drive that investment while also highlighting the other benefits that pension plans like HOOPP provide to the Canadian economy.
HOOPP holds over $60 billion in Canadian assets across asset classes. Wissell highlighted the strong performance they’ve enjoyed in Canadian bonds, as well as equities. He looks very favourably on Canadian real return bonds, though note that there aren’t as many available as he’d like. The HOOPP plan doesn’t own Canadian assets out of some sense of national duty, though, they own Canadian assets because the returns metrics make sense to their members.
“We don’t own Canadian assets because we should own Canadian assets, we own them because they’re high quality assets,” Wissell says. “They provide good returns in a risk-managed way. Canadian assets are compelling and they’re going to be owned by the plans.”
Wissell also notes that he and other fund managers want the freedom to diversify. By gaining global exposures and holding non-domestic assets, they can create more robust channels of return which can better safeguard the $3 billion HOOPP pays out in pension benefits each year. Those pension benefits, Wissell says, are a crucial contributor to the Canadian economy and Canadian society. He argues that those benefits should be considered when pension funds fall into the political crosshairs.
“When I come into work in the morning, I talk to my colleagues about the opportunity we have to help healthcare workers in Ontario. We can ensure that they don’t need to focus on their retirement, because we’ve got their back on that front,” Wissell says. “They can focus on taking care of Ontarians in the incredibly hard work they do.”
