OPTrust remains fully funded for the 13th consecutive year
nominal discount rate
one-year net investment return
Over $25 billion
in net assets
10-year average net investment return (2011-2021)
average member satisfaction
Rolled out a comprehensive multi-year inclusion, diversity and equity roadmap
Welcomed our 50th new employer to OPTrust Select, growing membership to over 1,700
Message from the Chair & Vice Chair
The challenges of the pandemic continued to have an impact throughout 2021. Yet OPTrust delivered on its mission of paying pensions today, preserving pensions for tomorrow. Most importantly for our members, we remain fully funded.
Throughout the year, the Board of Trustees focused on keeping the Plan sustainable for the long term. While OPTrust welcomed its 100,000th plan member and 50th employer to OPTrust Select, we recognize challenges to sustainability persist. We continued to track both short- and long-term risks and challenges facing the Plan, such as market volatility, low interest rates, plan maturation and the immediate effects of the ongoing global public health crisis.
GOVERNANCE AND STRATEGY
Strategic leadership, prudent oversight and joint governance are the foundations upon which the Board’s work rests. The Board works with the Plan’s management on an ongoing basis to ensure effective operations while also considering long-term priorities that will achieve our mission and vision.
Oversight of strategy is one of the Board’s most critical responsibilities. OPTrust’s current strategy will conclude at the end of 2022 so we initiated discussions on the development of a new, five-year strategic plan. Through robust conversations with the management team, we formed the foundation for renewing our strategy. When completed later in 2022, the refreshed strategy will guide our efforts to secure the health and longevity of the Plan and help the organization continue to move forward.
DELIVERING ON OUR MISSION
For OPTrust, 2021 was the year of focusing on the essentials of being a well-run pension plan: long-term sustainability, providing an excellent member experience, efficiently run operations and appropriate tools to let people do their best work. Also in 2021, OPTrust refreshed its vision and established a new set of core values to guide the team as it delivers its mission to members.
The team continued to perform efficiently and effectively while working remotely. Members received high standards of service as the Member Experience team addressed members’ needs by leveraging digital technology to collaborate in innovative and creative ways. The investment team delivered exceptional results while investing in a risk-efficient manner.
As team members gradually return to a shared workspace, lessons learned from the previous two years of remote work will be leveraged in support of an engaging and fulfilling work experience reflective of OPTrust’s culture and values.
While the working environment may continue to change in the near future, the commitment of the OPTrust team has remained constant. Our sincere thanks to every member of the team for their dedication and hard work on behalf of our members during yet another challenging year.
We have continued to move forward by doing what we do best: focusing on our members so they can have peace of mind knowing their pension is secure today and in the future.
Message from the President & CEO
"We are navigating our way through the pandemic and moving forward. Our role as a pension plan is to look beyond the short term and instead, decades into the future to pay pensions for generations of Ontarians."
As I write this message, I cannot help but reflect on the two years since the coronavirus pandemic changed the world and how far we collectively have come since then. There is no question the impact of the pandemic and the immeasurable loss of lives and livelihoods will be felt for years.
We are navigating our way through the pandemic and moving forward. Our role as a pension plan is to look beyond the short term and instead, decades into the future to pay pensions for generations of Ontarians.
In many respects there was much to be optimistic about during 2021 and we are focused on navigating our way through the pandemic and moving forward.
BUILDING ON STRENGTHS
Together through our efforts, we maintained our fully funded status for the 13th consecutive year and continued to meet members’ expectations with an average 8.8 out of 10 in satisfaction. During the year, we strengthened actuarial assumptions to enhance the long-term health of the Plan by lowering the discount rate to 2.85 per cent, net of inflation, from 3.0 per cent in 2021. The Plan’s funding position is not something we take for granted as it relates directly to pension security for our members in retirement.
GROWTH AND SUSTAINABILITY
We continued to focus on Plan sustainability. In 2021, we recognized two significant milestones in the growth of OPTrust — surpassing 100,000 members and welcoming our 50th new employer to OPTrust Select. With this pension offering, employers are making a difference to the disparity in retirement income in communities across Ontario for these members and their families.
OPTrust’s investment strategy was designed to weather market volatility by treating risk as a resource that needs to be carefully managed and that strategy again performed well in 2021. We invest locally and globally and ended the year with a net investment return of 15.3 per cent. As long-term investors, we focus on a longer horizon and OPTrust’s 10-year return is now 8.9 per cent. More than 70 per cent of the Plan’s pension benefits are funded by returns. While the pandemic has presented numerous challenges, many opportunities have also arisen.
We invested in innovative companies and real estate assets positioned for a post-pandemic world such as our investment in Portland Commons. This project presented a rare opportunity to develop one of the first post- COVID-19 office buildings in the heart of downtown Toronto, reflecting our long-term approach to property development in an environmentally sustainable manner, as we move forward.
The United Nations Intergovernmental Panel on Climate Change report and its 26th Climate Change Conference (COP26) in 2021 both made clear the intensifying impact of climate change, which will impact the economy, financial markets and the communities in which we invest.
This urgency underscores our commitment to continually improve how we integrate environmental, social and governance (ESG) factors into our investment decision making and asset stewardship. This year, OPTrust took important steps to better assess and monitor responsible investing integration in our externally managed investments and to lay the foundation for the renewal of our climate change strategy.
WORKING WITH PURPOSE
Our vision is to deliver peace of mind in retirement for our members, to invest sustainably for the long-term health of the Plan and to create an inclusive and fulfilling work experience for our people. We have a core set of values that are important building blocks to our culture and serving our members and every day the team works with purpose to reflect these values.
Building on our commitment to accelerate meaningful progress towards a more inclusive workforce, OPTrust appointed its first Inclusion, Diversity and Equity leader to develop a robust three-year strategy that will ultimately move our organization forward. Working with purpose also means readying our organization to thrive as we move forward, reimagining what work at OPTrust can look like in the coming years.
CULTURE AND VALUES
Our values help us focus on delivering service to members and our mission — paying pensions today, preserving pensions for tomorrow.
›Collaboration and Teamwork
› Excellence and Continuous Improvement
I continue to be inspired by the resiliency and strength of our team and their exceptional efforts. They truly went above and beyond in always putting members first every day. I am also appreciative of the Executive Team, the Board of Trustees and the Plan Sponsors for their leadership, confidence and support over the past year.
Together, we have continued to move forward by doing what we do best: focusing on our members so they can have peace of mind knowing their pension is secure today and in the future.
The Plan is sustainable if it continues to deliver an appropriate and competitive benefit within an acceptable cost range in the short, medium and long terms. That means members’ contribution levels will remain relatively steady through the years they are making those contributions to the Plan and they will be paid their pensions when they retire. As of December 31, 2021, the the Plan has been fully funded for 13 consecutive years, yet ongoing challenges remain, including: the investment environment, plan maturity, longevity risk and low interest rates that affect the funding valuation.
We are always looking into the future so we can attempt to foresee any upcoming challenges that could potentially affect our sustainability. In 2021, we also conducted a comprehensive study that considers climate change impacts on our assets and liabilities. This study looked at economic and demographic future outcomes under various scenarios.
The pension commitment spans many decades. In keeping with that long-term time horizon, short-term market events, whether positive or negative, should not lead to contribution and/or benefit changes. Contributions and/or benefits should only be changed when economic conditions or member demographics and/or behaviours change the long-term expected cost of the benefit. In setting the funding policy, we seek to maintain a balance between four different goals: benefit security, contribution rate stability, fairness between the two schedules of benefits and intergenerational equity. Intergenerational equity means that every generation of members will pay a fair amount for the benefits they receive — not that every generation should pay the same contributions for the same benefit. Of all these goals, the security of accrued benefits is the most important. It is essential we keep our commitment to members that they will receive their accrued benefits.
OPTrust engages independent actuaries to perform regular valuations of the Plan to ensure there are enough assets to meet the projected cost of members’ lifetime pensions. OPTrust’s 2021 valuation shows the Plan remained fully funded as of December 31, 2021. The funding valuation also showed deferred (or smoothed) investment gains of $2,461 million, which will be recognized over the next four years, further supporting the Plan’s funded status in the years to come. The Plan’s real discount rate for the 2021 funding valuation was reduced to 2.85 per cent, net of inflation, down from 3.00 per cent in 2020. The effect of this change increased the total fund liabilities by $668 million. Changes in the Plan’s actuarial assumptions can have a major impact on the projected cost of members’ pensions and the Plan’s funded status. The table shows the impact of a 0.5 per cent change in certain key assumptions on the Plan’s funded status.
SERVING OUR MEMBERS
FOCUSED ON SERVING OUR MEMBERS
How our members feel about the services we provide is important. In 2021, our members and retirees gave us high marks, rating their satisfaction an average 8.8 out of 10. We were rated among the top 10 globally and top two among our Canadian peer group for the services we provide in a global benchmarking study conducted by CEM Benchmarking Inc.
Participation in a pension plan is an important part of a member’s financial well-being. With that in mind, a new educational video What's Important – Safeguard your retirement: Get the facts before you act was released in November, which is Financial Literacy month in Canada. This video, developed in partnership with some of our Canadian pension peers, not only serves to educate our plan members, but others who participate in defined benefit pension plans in the broader public sector in Canada.
Our members continue to be well served and supported during the pandemic. Members are showing more and more interest in attending webinars to learn about their pensions as they prepare for retirement. Ready, Set, Retire! and Health Coverage in Retirement are two new webinars members can attend live or view a recording afterwards, at their convenience. Retirement is a major transition and although exciting, can be a time of apprehension. Ready, Set, Retire! gives an overview of the pension benefit, so members know what to expect and can plan ahead.
Our members continued to be OPTrust Select membership continues to grow with approximately 1,700 members in the Plan from over 50 employers from the nonprofit and charitable sectors. Retiree information and educational resources have been expanded with a new OPTrust Select Retirees Booklet now available on our new Retiree section on optrustselect.com.
As interest from employers joining the Plan continues to grow, we enhanced our onboarding processes to ensure new employers get the support they need. For many of these employers, providing a pension benefit for their employees is new and our goal is to ensure this important membership journey is smooth and well supported.
INVESTMENT STRATEGY & PERFORMANCE
TOTAL PORTFOLIO APPROACH
- We adopt a Total Portfolio Approach (TPA), which emphasizes an integrated approach to investing in which management and the Board work toward shared stakeholder objectives, namely preserving the fully funded status of the Plan over the long term.
- Our portfolios are designed and sized with the desired return, risk and liability-hedging characteristics of the total fund in mind.
- Our Member-Driven Investing (MDI) strategy is our application of a TPA, which aims to earn the returns to keep our Plan fully funded at the lowest risk possible. This is aligned with our members’ interest — to improve pension certainty.
- Our total portfolio approach emphasizes hedging our liabilities to the extent possible, harvesting a diversified set of risk premia and adding value in asset classes where we have a competitive advantage.
- We construct our portfolio to be resilient to different economic and market environments. This helps our Plan weather market volatility while also delivering attractive returns in good times. We strive to implement cost-effective risk mitigation strategies to reduce drawdowns without being a drag on long-term returns.
- Retained our fully funded status and generated attractive returns despite a low-yield environment.
- Strong value creation in our private markets portfolios.
- Implemented systematic investment strategies that will help to mitigate risk in adverse market environments.
- Initiated small-sized investment in digital assets and will continue to explore this space.
- Developed measures to better assess the quality of decision making at various levels of our portfolio hierarchy.
- Completed a top-down assessment of the impact of climate change on our Plan sustainability.
TOTAL FUND PERFORMANCE
Our total fund portfolio delivered a net return of 15.3 per cent in 2021. Return-seeking assets were the largest positive contributor, while liability-hedging and risk-mitigating assets did not perform as well.
ASSET CLASS OVERVIEW
In alignment with our total portfolio approach, we divide our total fund assets into four sub-portfolios, each with a specific purpose, to help us achieve our MDI objectives: Liability Hedging Portfolio (LHP), Return Seeking Portfolio (RSP), Risk Mitigation Portfolio (RMP) and Funding Portfolio (FP).
- Liability Hedging Portfolio: The objective of the LHP is to help mitigate risks to the Plan’s funded status caused by changes in the liability discount rate. To do so, we hedge a portion of the Plan’s interest rate sensitivity by holding Canadian government bonds. These bond holdings also serve as the main source of funding liquidity for the Plan. We significantly reduced our allocation to bonds in 2020 as yields reached historical lows, while maintaining ample liquidity in the Plan.
- Return Seeking Portfolio: The RSP is composed of a diversified mix of risky assets and is the main return driver for the total fund. It includes public equity, private equity, credit, public market multi-strategy investments, real estate and infrastructure.
- Public Equity: Our public equity exposure is designed to complement our private equity strategy and generate returns using liquid market instruments. We obtain public equity exposure through internally managed cash and derivative positions, as well as using external managers. Our public equity portfolio is diversified across developed and emerging markets. Public equities contributed positively to total fund returns in 2021 led by strength in developed markets. Overall, our public equity portfolio delivered a net return of 12.9 per cent for the year.
- Private Equity: Private equity is expected to generate higher returns than public equity over the long term while providing a smoother volatility profile. Our private equity strategy, which focuses on buyout investments and lower-risk private equity and debt investments, allows us to identify a broad range of investment opportunities and execute upon those that offer the most attractive risk-adjusted returns. We invest directly into private companies, typically alongside partners and indirectly, through private equity funds.
- Credit: Credit investments provide attractive risk-adjusted returns and can help deliver stable cash flows for the total fund, allowing us to better fulfill our pension obligations.
- Multi-Strategy Investments: We invest in a wide range of liquid alternative strategies to access value-add opportunities within a broad and diversifying set of risk premia. These strategies, which are dynamic and generally less correlated with traditional market returns, increase resilience of the total fund portfolio to different economic and market environments.
- Real Estate: The real estate portfolio is an important diversifier for the total fund, lowering funded status volatility and providing predictable income to fulfill our pension obligations. Real estate can provide attractive risk-adjusted returns and is also a hedge against inflation over the long term.
- Infrastructure: Infrastructure investments add diversification to the total fund and act as a partial inflation hedge. They also provide cash flow and the potential for return enhancement through long-term capital growth.
- Risk Mitigation Portfolio:The assets/strategies within RMP are not expected to deliver high returns over the long term but are expected to enhance portfolio diversification and to mitigate risks associated with tail events. We hold U.S. Treasuries, safe-haven currencies, gold and trend-following strategies in the RMP, as they typically perform well in market stress environments.
- Funding Portfolio: This portfolio represents the net funding for the total fund, which allows us to manage our day-to-day liquidity and efficiently implement our desired asset mix. The Funding Portfolio includes exposures such as bond repurchase agreements, implied funding from our derivative positions, money market and liquidity reserves.
The investment environment in 2021 was characterized by a further pickup in economic activity following the COVID-19 shock, rising interest rates and inflation, against a backdrop of aggressive monetary and fiscal stimulus. An easing of lockdowns amid major progress on COVID-19 vaccinations has supported a return to a more stable growth path. However, healthy demand growth against continued supply bottlenecks has caused inflation pressure to increase, with interest rates and monetary policy expectations repricing to tighter settings toward the end of 2021.
Supply-demand imbalances, which were particularly acute in commodity markets, contributed to inflation pressures. Commodity prices rose significantly this year, with oil prices registering a 55 per cent rally — the largest since the Global Financial Crisis. Higher commodity prices helped support the Canadian dollar, which appreciated modestly against most major currencies. Alternative asset classes such as infrastructure and real estate have also performed well. Non-traditional assets, including digital assets, continued to see rapid growth and increased participation from institutional investors in 2021.
Despite potential interest rate and inflation risks, 2021 proved generally favourable for investment risk taking. Equities in developed markets did exceptionally well, while emerging markets were flat. Bond values declined drastically as yields jumped as much as 80 basis points for Canadian long-term bonds. This again highlighted the benefit of a diversified portfolio, through which we actively participated in the growth recovery while managing downside risk.
OPTrust’s Responsible Investing program is an integral part of our mission to provide sustainable pension security for our members.
We recognize that environmental, social and governance (ESG) factors can materially affect investment risk, return and our reputation. We are focused on investing to generate sufficient returns to keep the Plan fully funded over the long term by considering both ESG risks and opportunities that impact investment outcomes.
Every investment professional at OPTrust is responsible for including ESG risks and opportunities in their decision making. We also have a Sustainable Investing and Innovation team charged with leading OPTrust’s Responsible Investing strategy. The team’s approach is centred around:
Climate Change: Leading the renewal and delivery of a robust and integrated climate change strategy across OPTrust.
Investment Strategy: Allocating capital to opportunities at the intersection of sustainability and innovation to complement strategies in our other asset class teams.
ESG Integration: Establishing more integrated, systematic and measurable approaches to responsible investing across our investment portfolio.
RESPONSIBLE INVESTING HIGHLIGHTS
Our responsible investing approach at OPTrust considers governance, ESG integration, active ownership and stakeholder engagement.
Voted at 1,744 company meetings in 52 countries
Engaged 410 companies on key ESG issues
Initiated an ESG data program to better track and understand our RI performance across the total fund
Created toolkits to assist investment teams in advancing Inclusion, Diversity and Equity (IDE) in their portfolios
Rolled out our Responsible Investing Partner Evaluation (RIPE) framework to 100% of new externally managed investments
Revised our Proxy Voting Guidelines to keep up with evolving best practices in corporate governance
Strengthened our private markets ESG capabilities with a sample ESG policy and policy library
Continued to be an active voice in investor collaborative initiatives including the Ontario Capital Markets Modernization Task Force, UNPRI Asset Owner Technical Advisory Committee, Investor Leadership Network and the Thinking Ahead Institute’s climate change working group
INCLUSION, DIVERSITY & EQUITY
Our Inclusion, Diversity and Equity (IDE) strategic roadmap is in place. The objective of the strategy is to create greater understanding for our employees, members and the communities in which we live and interact.
OPTrust believes unlocking the value of IDE continues to be a business and societal priority that will drive success. Recent data continues to confirm that focusing on diversity remains both the right and the smart thing to do for leading workplaces. Internal and external expectations regarding this work continue to grow in the form of not just the talent we are seeking to attract to OPTrust but also in terms of what our members and others expect of us.
Our strategic framework is comprised of three pillars representing the key tactical areas of focus showcasing the sequential nature of this work.
Strengthen ability to make everyone feel welcome and that they belong
Share and learn from the experiences and worldviews of diverse communities
Review and update talent systems to disrupt systemic exclusion, bias and racism
Increase support, visibility and governance of employee-led groups
Measures and Targets
Conduct census internally, with recruitment data to deliver an OPTrust IDE Dashboard
Work with diverse groups to enhance learning, awareness, branding and talent pool access
We are integrating IDE into all aspects of the team’s work by tapping into the curiosity of employees who have expressed a strong desire to want to learn more. Bringing greater understanding and respect to cultural and socioeconomic backgrounds is part of this thirst for knowledge. On top of a speaker series, we are creating a Days of Significance learning platform and an educational curriculum. This combined learning, along with opportunities for employees to recognize each other through Values In Action (VIA), an employee recognition program that celebrates and shares gratitude for our teammates. We celebrate big and small wins that align with OPTrust’s values: collaboration and teamwork, integrity, respect, flexibility, and excellence and continuous improvement.
RISK MANAGEMENT & COMPLIANCE
OPTrust recognizes there is risk in its operations and activities, and risk management is a tool used to advance our mission and objectives. OPTrust seeks to ensure risk management processes and practices are understood and integrated throughout the organization, both at the business and strategic levels.
Our risk management and compliance frameworks are grounded in our corporate values, guided by the principles of our Code of Conduct and integrated into business processes in a way which fits with our mission, size and environment.
A robust governance and risk management framework at OPTrust assists in improving decision making, achieving strategic and operational objectives, and enhancing overall performance. OPTrust strives to establish a risk-conscious culture with emphasis on appropriate behaviours, risk analysis and management of risk within approved risk parameters. The Risk team provides advice on strategies for managing enterprise risks, including operational risk, crisis management, liquidity and investment risk, legal and regulatory risk, funding risk and reputational risk.
We are guided by our Board Risk Appetite Statement, implemented through our Management Risk Policy, to ensure we appropriately manage our material or missioncritical risks on an ongoing basis, within our risk appetite. We integrate risk management into all aspects of OPTrust strategy and operations and related decision making, engage appropriate stakeholders and subject matter experts, and employ industry best practices.
The Board is committed to ensuring that in executing their responsibilities, Board members, management and all staff conduct their affairs ethically and in compliance with all applicable laws, regulations and corporate policies. Our compliance program plays a critical role in managing legal and regulatory risk to ensure we deliver on our mission and create a fulfilling work experience for our people.