With invested assets of $13.7 billion, OPTrust manages one of Canada’s largest pension funds. Our investment program is designed to meet one fundamental objective: generating the long-term rate of return needed to provide our almost 84,000 members and retirees with a secure lifetime pension.
Funding target return
To meet this funding requirement and ensure the sustainability of our pension promise, we expect the Plan’s investment portfolio to achieve a real average annual return of 4.0% after inflation, over the long term. Factoring in the Plan’s 2.5% inflation assumption, our nominal target return for funding purposes is 6.5%.
This long-term return objective is a key criterion in establishing the Plan’s asset mix, developing OPTrust’s investment strategy and determining an appropriate level of investment risk for the Fund. The target return also provides an important reference point for measuring the Plan’s performance against our funding requirements, particularly over the long term.
Over short-term time horizons, we expect the Plan’s returns to rise and fall from year to year, in response to the same factors that shape the overall performance of the markets in which we invest.
We therefore compare OPTrust’s total fund return to the performance of a composite “policy benchmark portfolio” that reflects OPTrust’s allocation to the various asset classes held by the Plan. For most asset types, the benchmark portfolio is based on widely recognized indexes for individual asset classes. For certain alternative investments, the benchmark reflects a custom index or a proxy for the portfolio’s expected long-term return.
As a result, the composite benchmark’s return provides a useful point of reference for measuring the added value generated by OPTrust’s active management of the Fund.
In 2011, OPTrust’s investment program achieved a 5.5% return for the Total Fund, outperforming the 3.9% return for our composite benchmark portfolio. While OPTrust’s return exceeded our market benchmark by 1.6%, the Fund fell short of our 6.5% funding target, in a year of significant losses for Canadian and global equity markets.
Net investment income for 2011 was $578 million, compared to $1,530 million the year before, when the Plan returned 13.9%. The added value generated by active management of the Fund was 1.6% or $210 million in 2011.
Over OPTrust’s 17 years of operation, the Plan’s investment portfolio has realized an average gross annual return of 8.5%, exceeding both the 7.4% return for our composite benchmark portfolio and our 7.25% average funding target return for the same period.
OPTrust’s diversified investment portfolio achieved a 5.5% return in 2011, outperforming the 3.9% return for our composite benchmark in a year of significant losses for Canadian and global equity markets. OPTrust’s average return of 8.5% since the Plan’s launch in 1995 exceeds both our benchmark and the Plan’s funding target for the same period.
More information on OPTrust’s investment strategy and performance are available in our 2011 Annual Report. Detailed information on OPTrust's investment strategy is also available in our Statement of Investment Policies and Procedures (PDF, 129 KB).