Portfolio Strategies

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 Member-Driven Investing objectives: the Liability Hedging Portfolio, the Return Seeking Portfolio, the Risk Mitigation Portfolio and the Funding Portfolio.

Liability Hedging Portfolio

The Liability Hedging Portfolio is designed to help manage funded status volatility by mitigating risk associated with changes to the discount rate of the Plan’s pension liabilities. We do this by hedging a portion of the interest rate sensitivity of the Plan’s liabilities. Our Liability Hedging Portfolio is composed of long-term Canadian federal and provincial government bonds. It also serves as the main source of liquidity for the Plan.

Return Seeking Portfolio

To keep our pension promise to our members, we must earn enough return to keep the Plan fully funded over the long term. This means investing in a diversified portfolio of assets that we expect will earn a risk premium over time. Assets in this Return Seeking Portfolio include private and public equity, credit, multi-strategy investments, real estate, infrastructure and commodities.

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 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.
Public Equity: Our public equity exposure is designed to complement our private equity strategy by providing additional, liquid and differentiated sources of equity returns. In public equities, we invest in both developed markets and emerging markets. In developed markets, we invest passively with the goal of capturing equity risk premia while diversifying geographically, as well as reducing the carbon intensity of our public equity exposure. Investing in emerging markets helps provide both diversification and exposure to global drivers of economic growth. In emerging markets, our approach is to utilize external managers to deliver active management because we believe the value-add opportunities are greater in these markets.
Credit: Credit investments serve as a diversifier to the total fund given the variety of sub-strategies in the credit space. They are also characterized by having attractive risk-adjusted returns and help generate stable cash flows for the Plan, allowing us to better fulfill our pension obligations. Our active credit exposure is implemented through external managers and complemented by passive internally managed strategies.
Multi-Strategy Investments: Our multi-strategy investments consist of a wide range of liquid alternative strategies that allow us to diversify the total portfolio, while accessing value-add opportunities as well as a broad and differentiated set of risk premia. These strategies, which can be more complex and dynamic in nature, generally increase the resilience of the total fund portfolio.
Real Estate: The real estate portfolio is an important diversifier for the total fund, ideally 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. We invest across real estate equity and credit in both the private and public markets. We primarily invest directly and complement these investments with fund and co-investments.
Infrastructure: Infrastructure investments add diversification to the Total Fund and act as a partial inflation hedge. They also aim to provide cash flow and the potential for return enhancement through long-term capital growth. Our infrastructure strategy focuses primarily on establishing and deploying capital through platforms, but also investing directly into infrastructure assets and indirectly through infrastructure funds.
Commodities: We have a small exposure to commodities that we have designed to be dynamic, instead of buying and holding, as commodities tend not to deliver attractive risk-adjusted returns over the long term. Our commodities strategy is specifically aimed at capturing the upside when the cycle is favourable to the asset class.

Risk Mitigation Portfolio

The Risk Mitigation Portfolio is designed to enhance total portfolio diversification and to help mitigate drawdowns in tail events. We hold U.S. Treasuries, U.S. dollar, gold and trend-following strategies in this portfolio.

Funding Portfolio

This portfolio represents the net funding for the total fund, which allows us to manage our day-to-day liquidity and to access a broader and more diversified set of strategies. This helps us achieve a better overall risk-return profile for the total fund. The funding portfolio includes exposures such as bond repurchase agreements, implied funding from our derivative positions, money market and liquidity reserves, with the goal of minimizing borrowing costs.

Visit the Private Markets Group

OPTrust's investments in private equity and infrastructure are managed by the Private Markets Group (PMG), an internal team established in 2005

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