The Ontario Municipal Employees Retirement Board (OMERS) is enthusiastic about private equity.
The pension fund announced March 1 that its total return was 16% in 2005, which exceeded its benchmark return of 13.2% and beat last year’s 12%, in part due to successful investments in private equity.
OMERS, Canada’s fourth largest pension fund, earned net investment income of $4.7 billion last year, compared to $3.2 billion in 2004.
“The exceptional returns from our private market investments in real estate, infrastructure and private equity, combined with the global equity markets, contributed to another strong year,” said OMERS CEO Paul Haggis. OMERS’s long-term strategy is to increase its holdings in private equity, real estate and infrastructure from the current 19.8% to 37.5% of net investment assets. OMERS also said it expects these asset classes will outperform traditional stocks and bonds over the long term and provide more stable returns.
OMERS has four investment operating groups: public markets, private equity, infrastructure and real estate. Last year, the fund also put more into private equity. Net investments in the asset class rose by about $1 billion. At $2.5 billion, the asset class currently makes up about 6% of its investments. Going forward, OMERS aims to put 10% in the asset class.
OMERS’s real estate investments were its best performing assets, however. The division recorded a return of 26% in 2005, versus 11% in 2004, thanks to strong rental operating income plus favorable market value appreciation, the fund said.
Still, in looking ahead, the fund reportedly is expecting returns of roughly 8% over the next few years from private equity. And private equity will continue to figure prominently in its strategy.
“Our asset mix strategy is working and we remain committed to increasing our asset allocation in private market investments,” Haggis said.
OMERS provides retirement benefits to about 365,000 active and retired members on behalf of 900 local government employers in Ontario.