In 2012, OPTrust:
- Achieved an investment return of 10.1% in 2012, outperforming both the Planâ€™s 7.2% composite benchmark return and our 6.5% funding target for the year
- Limited the Fundâ€™s exposure to public equities, substantially reducing overall investment risk while achieving a strong total fund return
- Continued to implement the Planâ€™s long-term diversification strategy, increasing real estate, infrastructure and private equity to 31.3% of the Total Fund
- Completed our most recent asset/liability study, adjusting the Planâ€™s asset mix targets to meet our liabilities while diversifying investment risk
Investing for the long termOPTrustâ€™s investment mandate focuses on generating the long-term rate of return needed to fund our membersâ€™ and retireesâ€™ earned pension benefits.
To meet this funding obligation, we expect the pension fund to achieve a real average annual return of 4.0% after inflation and investment expenses. Factoring in the Planâ€™s 2.5% inflation assumption for 2012, our nominal long-term target return for funding purposes was 6.5% for the year.
Our investment policy and strategy are directly linked to OPTrustâ€™s overall mission to deliver on our pension obligations today and for decades into the future. The mandate of our Investment Division is therefore to build a portfolio of assets that will achieve our funding target return over a long time horizon, while avoiding substantial negative returns in the short term.
OPTrustâ€™s asset mix policy, which defines the asset classes we invest in and their respective allocations, reflects this funding obligation. It also represents the starting point for determining both our investment strategy and the level of investment risk we expect to undertake to achieve our objectives.
Over OPTrustâ€™s 18 years of operation, the Planâ€™s investment portfolio has realized an average gross annual return of 8.6%, exceeding our 7.2% average funding target return for the same period.
OPTrustâ€™s diversified investment portfolio achieved a 10.1% return in 2012, outperforming the 7.2% return for our composite benchmark in a year marked by strong returns for the Planâ€™s public equity, real estate, infrastructure and private equity portfolios. OPTrustâ€™s average return of 8.6% since the Planâ€™s launch in 1995 exceeds both our benchmark and the Planâ€™s funding target for the same period.
Portfolio Returns vs. Benchmarks, 2011
Diversification was critical to OPTrustâ€™s total fund return of 10.1% in 2012. Over the year, double-digit returns from the Planâ€™s global equity, real estate, infrastructure and private equity portfolios helped offset lower returns from fixed income, real return bonds and a loss of -3.8% from our energy commodities portfolio.