OPSEU Pension Trust is working on a growth plan that goes beyond just shaking up the makeup of its portfolio.
The Toronto-based fund is already responsible for the management of $17.5-billion in assets for 86,000 current and former Ontario government employees in the Ontario Public Service Employees Union (OPSEU). Now the fund, known informally as OPTrust, is looking to take on even more responsibility and hopes to boost its reputation for investing along the way.
OPTrust would like to absorb other public sector pension plans in Ontario. It is also interested in managing some of the funds for the Ontario Retirement Pension Plan (ORPP), the provincial system proposed by the Liberal government aimed at workers with no workplace pension s.
"If there are smaller plans that want to become part of ours, we are interested in plan expansion," said OPTrust chief executive officer Hugh O'Reilly.
Earlier this year, draft regulations were issued that would allow some single-employer pension plans in Ontario's public sector to combine with jointly sponsored pension plans. OPTrust is one of these jointly sponsored plans, supported by OPSEU and the province. The idea is that larger merged plans would provide more transparency, have lower costs and provide more sustainable benefits.
Mr. O'Reilly expects many small plans to look for partners.
"There are other pension plans in the broader public sector. Those employers, they run good programs but they don't want to continue to operate pension plans. It's a lot of work and it takes up a lot of time," he said.
Until the rules are firmed up, though, OPTrust hasn't set any targets for mergers, and the pension plan isn't reaching out to these players yet.
OPTrust is mulling a broader member base at the same time it is reviewing its investment strategy with the aim to reduce the plan's volatility. Part of that effort includes shifting toward a liability-driven investment (LDI) strategy, which for OPTrust is geared less toward rates of return than toward its funding status – meeting all current and future requirements of the mature plan.
So far, Mr. O'Reilly said the strategy is succeeding, as a move in March to reduce equity exposure to about 23 per cent from 32 per cent by hedging paid off during recent weeks of market turmoil. Mr. O'Reilly will present the new strategy to the board at the end of November.
Mr. O'Reilly joined OPTrust at the beginning of the year and recently brought aboard James Davis as chief investment officer. Mr. Davis had formerly been with the Ontario Teachers' Pension Plan as vice-president of strategy and asset mix, as well as holding the title of chief economist.
"We are very much a plan that is undergoing a transformation, and at this point in my career I feel that it's an exciting place to be – making these changes from the bottom up," Mr. Davis said of his new employer. He added Teachers taught him many lessons to draw upon at OPTrust, including portfolio construction, liability assessment and the way it takes risk into account.
OPTrust already manages all of its alternative asset portfolio internally and is looking at bringing other externally managed investments in-house as it pursues its LDI strategy.
OPTrust is also interested in Ontario's progress toward implementing the ORPP, despite the political uncertainty stemming from the federal election.
"Theoretically, we have put on the table the notion of investing the assets of the ORPP. We'd be interested in allowing others to potentially have access to investment expertise," Mr. O'Reilly said. "We currently have investments in the public market space and the alternative-asset-class space, so we see ourselves as investing those funds alongside ours."
So far, the Ontario government has made some progress toward establishing a board of directors for the ORPP. Preliminary plans indicate the money contributed by workers and their employers will be managed independently from government finances in a separate fund.
Mr. O'Reilly said that there's no reason Ontario's jointly sponsored pension plans – a group that includes Teachers and the Ontario Municipal Employees Retirement System (OMERS) – should not be able to lend their investment expertise to managing ORPP assets.
OPTrust's strategy will have paid off in Mr. O'Reilly's view if the plan's funding status stays buoyant and the plan becomes better known as an investment partner and thought leader in the pension sphere.