Flexible in-house thinking pays dividends for Canada’s HOOPP

CROCKER_johnA strategic shift into equities during 2009 and the completion of a multi-year strategy to bring all assets in house, has resulted in the Healthcare of Ontario Pension Plan (HOOPP) returning 15.18 per cent return for 2009, positioning it as one of very few pension funds around the globe to be fully funded.

The fund has embraced liability-driven investing, with the aim of better aligning assets with future cash flow requirements, which also means a reduction in the exposure to equities long-term, while increasing exposure to long-term bonds, real-return bonds and real estate.

But one of the main reasons for 2009’s success, a result 541 basis points above its benchmark, was an asset mix decision to increase the weighting in equities, credit and provincial bonds, which allowed the plan to take advantage of the recovery in the markets after March 2009.

In late 2007, HOOPP reduced its weighting in equities, a move that limited its losses at the end of 2008.

At the end of December 2009 the actual asset mix, with the effect of derivatives, was 44.6 per cent equities and equity-oriented holdings, and 55.4 per cent fixed income.

During 2009 the fund also completed its multi-year strategy to move all externally managed assets in-house.

The result has been external manager fees were down 31.2 per cent (or $2.5 million) from 2008, and down 67.6 per cent from the 2006 high of $17.3 million. No external manager fees will be incurred in 2010.

Other highlights throughout the year included a change in the fund’s hedging policy so that 100 per cent of all foreign currency is hedged back into Canadian dollars.

The fund also made a large investment in a multi-year project to implement a new investment management system.

“At a time when many other pension plans are looking at benefit cuts or contribution increases, HOOPP has been able to provide stability to our more than 250,000 members and retirees,” John Crocker, president and chief executive, said.

The fund was 102 per cent funded at the end of 2009.

“HOOPP’s contribution rates have not increased since the start of 2004, and will stay the same until at least the end of 2011,” he said.

HOOPP’s target asset allocation

Cash and short term securities 1.1%
Canadian equities 10.2%
US equities 10.2%
Non-North American equities 8.6%
Real estate 10.8%
Private equities and special situation 4.8%
Fixed income 54.3%