From July 1, the $32 billion Canadian fund, HOOPP, went live with a new investment IT platform, powered by Simcorp. Amanda White spoke with chief executive of HOOPP, John Crocker, about the importance of technology in the way the fund manages its money.
An asset-liability matching investment program with all assets managed in-house, predominantly through the use of derivatives, means the $32 billion HOOPP, the Canadian pension fund for Ontario healthcare workers, is heavily dependent on its systems.
After nearly 10 years using the Thomson Financial Portia product, the fund went live with Simcorp’s Dimension, at July 1.
Predominantly used by funds managers – with clients globally including DIAM, DnB NOR, and Schroders – the product works for HOOPP because it runs its assets like a funds manager.
All assets are managed in-house, and HOOPP’s entire 43 per cent exposure to equities is managed using derivatives.
“We have a sophisticated derivatives operation which is difficult to run, and an asset-liability matching approach – our balance sheet looks more like $50 billion than our assets of $32 billion because of the leverage through that,”chief executive of HOOPP, John Crocker, said.
“This is a multi-investment core platform that does performance attribution, it’s a big and complex system, and we use it for everything now except private equity and real estate.”
Such system overhauls are not cheap, but Crocker says the savings the fund makes by managing all its assets in-house offset those costs. He says the fund spends about 33 basis points on all costs which include everything from salary to building costs.
The fund finished transferring any outstanding external mandates into the in-house team last year, a multi-year strategy, partly because Crocker said they were “all talk and no action on alpha” but also because of the high fees. He estimates the fund was spending $20 million a year on external managers that were managing about 20 per cent of the assets.
“A new system implementation has been expensive, but for example in three years we would have spent $60 million in funds manager fees with external managers. Instead we have totally updated our core system, and can pay to have good people internally.”
The value of good investment people, and a stable and happy team, is not overlooked by Crocker.
The 36-member team manages roughly $1 billion per person with the ability to be such a lean operation predicated on its reliance on systems and instruments.
But it paid well (according to its balance sheet $71 million was spent on investment administration last year) including rolling four-year performance bonus pay for staff.
“The impact of good people is huge,” Crocker said. “We have a consistent team, and had very low turnover in the investment group the way we run money is not that labour intensive.
“We realise that people are a rare commodity, and during 2008 I said if we see good people that have been let go, go for it, good people are good people.”
However Crocker was cognisant this model, which works in the Canadian context, may not apply to other pension systems.
“This works in the Canadian context, where we can pay to attract good people. The US state systems are totally goofy from where we sit, they spend hundreds of millions on consultants, managers and probably get sub-par results. They could run it internally but have to pay executives for that.”
At HOOPP Crocker said there is a genuine cultural commitment to the job, and a strong culture of not-for-profit, with all staff, including himself, members of the plan.
The fund is now fully funded, with a 102 per cent status at the end of 2009, and a return of 15.18 per cent.
There had been no fundamental change in the asset mix since 2007 where a shift to liability-driven investing turned the 60:40 equities to fixed income mix on its head, and set a long-term return aim of 6.5 per cent.
HOOPP asset allocation:
|Non North American equities||8.6%|
|Private equities and special situations||4.8 %|