OMERS CEO Michael Latimer is shown in this undated handout photo.Handout
Stable infrastructure investments are beckoning to Ontario Municipal Employees Retirement System, and the pension fund is willing to pay the price for quality assets.
The pension plan for Ontario municipal employees said it wants to boost its exposure to infrastructure from 14.7-per cent as of its 2014 year, to 21.5 per cent of its total portfolio in the next few years.
OMERS invests in infrastructure projects through its Borealis Infrastructure division in the U.K., U.S., and Canada. It also opened a business development office in Australia in 2013. Borealis reported a net return of 12.7 per cent in its 2014 year, making it OMERS' second-best performing group after its private equity business.
"You will pay market price for assets – that's just a reality," said Michael Latimer, chief executive of OMERS, who took over the role on April 1 last year. "But the ability to be able to execute by having your own people [on the ground], that's really been fundamental to our business model."
Expect OMERS to be among the bidders for Australian ports and highways as it pursues its target. The country's government is seeking new investment in its infrastructure projects through an initiative, called "asset recycling." The program aims to convince Australia's states and territories to sell existing assets into the private market, by offering them funds to build new infrastructure projects when they do.
"We'd like a piece of that," said Jonathan Simmons, chief financial officer at OMERS. Mr. Latimer added that he hopes countries such as Canada and the U.S. may adopt this model in the future.
Other pension funds have also expressed interest in these private market assets, which offer diversification and the possibility of returns that can outrun publicly-traded stocks. The assets come with their own challenges, though, since their value is calculated over long periods of time and they trade hands less frequently.
As OMERS has adjusted its investment strategy, infrastructure has come into focus. "In 2014 we kind of reset ourselves – there wasn't a lot of infrastructure activity we had underway in new origination. We've really been positioning ourselves across the markets and really getting ready for the opportunities we think will be available to us over the next two to five years," Mr. Latimer said.
"These are long-term assets that suit our pension liabilities very well, but they can have a 50-plus year asset life and we need that confidence when we invest around the geopolitical risks in the country where we're putting out money," Mr. Simmons said.
To achieve the pension manager's expanded infrastructure target, the weighting in its public market assets and real estate will likely decrease somewhat, the executives said.
More deal activity may also come from the private equity space, where Mr. Latimer says OMERS will look to replenish its book after a string of exits in the last two years.