It’s been half a year of financial-market turmoil, but Blake Hutcheson, CEO of one of Ontario’s biggest pension funds, sees a light at the end of the tunnel.
Hutcheson, who leads the Ontario Municipal Employees Retirement System (OMERS), began an interview Thursday by rattling off a list of the strife facing the financial world, including inflation rates as high as they’ve been in 40 years, eye-popping central bank interest-rate hikes quickly followed by mortgage-rate increases and the worst six months for the S&P 500 index of major U.S. stocks since 1970.
“Let’s recognize that these times will pass too,” Hutcheson said, when asked about how he would explain the fund’s mid-year results, which included a loss of $500 million, to OMERS’ 550,000 plan members that include many municipal workers and retirees.
“We have to get through (these times), keep our long-term focus, keep our strategy, keep our teams motivated. And we will get through them. And I think that is something any pensioner should try to appreciate.”
Hutcheson said he and the investing teams at OMERS believe the Bank of Canada is doing everything it can to bring inflation back into the “home” range of two per cent.
“We do not expect the kinds of inflation numbers we’re seeing this year to live beyond this year,” he said. “We expect inflation to come back a lot closer to home and … (be) somewhere in that three to four per cent range.”
OMERS reported a net loss of 0.4 per cent on its investments in the first half of the year, performing better than some of its large pension plan peers.
Other Canadian funds that have reported mid-year numbers in recent weeks have also pointed to roiling global markets, which have been rocked by persistent supply chain issues, the war in Ukraine and other geopolitical tensions.
Earlier this month, Canada Pension Plan Investments said it lost 4.2 per cent or $23 billion in the first quarter of its fiscal year; the Caisse de dépôt et placement du Québec reported a 7.9-per-cent loss, with net assets down $28.2 billion, in the first six months of the year; and Ontario Teachers’ Pension Plan Board reported a gain of just 1.2 per cent, with net assets up $900 million in the first half of 2022.
OMERS, much like the other funds, said Thursday that its investments in alternative assets, including infrastructure, real estate and private equity stakes in companies, helped offset losses on public stocks and credit investments.
In recent decades, Canada’s biggest pension fund managers have moved beyond stocks and bonds and taken significant stakes in such alternative assets around the world. Some critics say those assets can be more difficult to place a price tag on and valuations are not conducted as frequently as investments that trade on public markets.
OMERS, which had $119.5 billion in assets as of the end of June, said that over the 12 months ended June 30, it had a six-per-cent investment return or gain of $6.7 billion. (The fund uses internal benchmarks to gauge its performance but did not include those reference points in its mid-year report.)
The pension fund manager lost $3 billion in 2020, the first year of the pandemic and a period when other investors posted strong returns after government stimulus spending spurred markets back into high gear. However, OMERS bounced back in 2021 with a gain of $16.6 billion.
The Canadian Union of Public Employees (CUPE) Ontario, which represents 125,000 active members of the plan, has repeatedly called for an outside review of the fund’s investing practices. But so far the board that oversees OMERS’ investing performance has rejected any independent probe.
“Certain people will criticize us in good times and difficult times. And that is their prerogative,” Hutcheson said Thursday. “But I think when people understand what the last six months have dealt any global investor, by any objective measure, they will feel that OMERS has done a very credible job.”