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Healthcare of Ontario Pension Plan recorded a 9.38-per-cent return on investments in 2023 as stocks soared but missed its internal benchmark by about one percentage point as real estate assets struggled.

In a year when high interest rates and persistent inflation created volatility in markets, HOOPP’s returns were bolstered by strong performance from public stocks and private equity investments, which respectively gained 15.71 per cent and 15.9 per cent.

Real estate had a tough year that resulted in a 6.5-per-cent loss, which was similar to other large pension plans that have reported annual results.

HOOPP’s real estate holdings are most heavily tilted toward industrial and logistics properties, which have benefitted from a shift toward e-commerce, with lesser exposure to hard-hit office and residential assets. But the values of properties the fund manager owns outside Canada – which make up about half of its real estate portfolio – were marked down more rapidly than the buildings it owns in Canada.

The weakness in real estate last year “was pretty broad-based,” president and chief executive officer Jeff Wendling said in an interview.

“We think the worst of real estate is behind us but it could be another sort of flat-ish year this year,” he said.

HOOPP invests on behalf of about 460,000 employees at 677 employers in Ontario’s health care sector, including nurses and medical technicians.

The pension fund manager’s total assets increased to $112.6-billion, from $103.7-billion in 2022. And its funded status ended the year at 115 per cent, which means the plan has $1.15 for each dollar it owes to members. “And that’s our key metric that we focus on,” Mr. Wendling said.

“I feel really good about the year.”

Over 10 years, HOOPP has earned an average annual return of 8.43 per cent.

HOOPP also ended the year with 55 per cent of its assets invested in Canada, which is the largest proportion among any of the eight largest pension funds in the country.

“We’re happy to always look at Canada, and we do,” Mr. Wendling said.

A debate has flared up after a group of prominent CEOs suggested Canadian pension plans underinvest in Canada, and that governments should take steps to encourage them to invest more domestically.

A number of senior pension fund executives, both current and former, have pushed back, arguing that anything that detracts from a clear mandate to seek the best returns possible, relative to the risks involved, could be harmful to pension funds.

Asked about potential new measures that could complicate a pension fund’s mandate, Mr. Wendling said, “for sure, I have a concern about that. There are very strong arguments to not doing that. So I’m hopeful those arguments will prevail.”

He said HOOPP’s mantra is to deliver on its promise to pensioners, and that the strictly independent governance that most Canadian pension funds maintain has been key to their relative success.

“I’d be careful if the borders get muddied with other objectives,” he said.

A large part of HOOPP’s Canadian exposure is to bonds and fixed-income instruments, including real return bonds that are tied to inflation. HOOPP boosted its exposure to fixed income as yields spiked. And it is building up its infrastructure portfolio, which includes investments in assets that typically have stable cash flows and sometimes also protection against inflation, which would help reduce HOOPP’s reliance on bonds.

Investments that have performed well through a period of high inflation have been key to HOOPP’s results as investors grapple with the fallout from a period of high interest rates.

“There is a risk that maybe [inflation] remains sticky here,” Mr. Wendling said. “And we have to be prepared for that.”

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