The Ontario Municipal Employees Retirement Board (OMERS) is enthusiastic about private equity. The pension fund said Mar. 1, 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 the asset class.
OMERS, Canada’s fourth largest pension fund, earned net investment income of C$5.5 billion last year, compared with the C$3.7 billion it posted in 2004.
“The exceptional returns from our private market investments in real estate, infrastructure and private equity, combined with the continued strength of 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. The 2005 return on investment income from private equity was 23.2% compared with a 12.5% return in 2004. OMERS said the improved return is due to market value appreciation on several investments that improved performance as businesses matured.
The fund also put more into private equity. Net investments in the asset class rose by about $1 billion, and at $2.5 billion, currently make up around 6% of the fund. Going forward, OMERS will be aiming to put 10% in the asset class.
OMERS’s real estate investments was its best performing group. 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.
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,” said Haggis in the release.
OMERS provides retirement benefits to about 365,000 active and retired members on behalf of 900 local government employers in Ontario.