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					Restrictions on Pension
       Investing:
  A Canadian Perspective

       Michael Nobrega
    OMERS President and CEO

          4 June 2008

              -1-
                                OMERS – Who We Are

   Formed in 1962
   Defined Benefit pension plan for local governments in
    Ontario
   Jointly sponsored and funded public sector plan
   380,000 members (including 103,000 retirees); 906
    employers
   Small actuarial surplus ($80MM)as at Dec/07
   Net assets of over $51 billion as of Dec/07
   Fund returns: 8.7% in 2007, 13.7 average in 2005 - 07


                                                            2
                                            The Challenge
                                    The Pension Equation

 30% of average pension benefit
  is funded from contributions
 70% is funded from
  investment income


                                   70cents           $1
           +               +
                                   Investment

15cents
Employee
               15cents
                Employer
                                     Income
                                                =   Pension
                                                    Benefits




                                                               3
                                Investment Profile
           An institutional investor with global reach


                     % of
     Continent
                     Fund
Canada                61.0%
USA                   18.8%
Europe                14.5%
Asia                   4.9%
Australia / Oceana     1.0%
South America          0.6%
Africa                 0.2%




                                                     4
            Investment Performance
Significant participation in Infrastructure
          Private Equity and Real Estate




                                          5
                                  Investment Performance
                                A Changing Asset Mix Strategy
                2.8%
100%
                       6.0%       7.4%
                3.1%                       10.0%
90%    11.9%           7.9%
                                  9.9%

80%                    10.3%               20.0%
                                  12.5%
70%
                                           12.5%
60%
                                                     Private Equity
       57.3%
50%                    54.1%                         Infrastructure
                                  48.1%
                                                     Real Estate
40%
                                           42.5%     Public Equity
30%                                                  Interest Bearing
                                                    (includes Real Return
20%                                                 Bonds – long term
                                                    target 5.0%)
10%    24.9%                      22.1%
                       21.7%
                                           15.0%
 0%
       2003            2006       2007     Target
       Actual          Actual     Actual

                                                                     6
                   The Pension Investment Rules
                           The Federal Investment Rules


    Rule                      Description
5% Rule    Invest 5% or less of fund’s book value in single
           parcel of real estate or Canadian resource property
10% Rule   Invest no more than 10% of fund’s book value in
           any one entity
15% Rule   Invest 15% or less of fund’s book value in
           Canadian resource properties
25% Rule   Invest 25% or less of fund’s book value in
           aggregate in real estate and Canadian resource
           properties
30% Rule   Can only own 30% or less of shares eligible to
           elect corporate board
                                                            7
                     The Pension Investment Rules
                                      Rationale for the Rules
 Rules exist to ensure pension funds are properly invested
 Quantitative limits derive from historic “legal list” approach
  to regulating insurance
 Limit risk of exposure to single company/sector
 Ensure that pension funds remain passive investors
  focussed on plan administration
 “Prudent person” standard added to PBA in 1990
 Rules “harmonized” in 2000




                                                                   8
                                                The Pension Investment Rules
                                                                     The Global Picture

PPR
                            USA         Internationally, pensions are regulated along a
                         Netherlands     continuum between prudent person rules
                             UK          (PPR) and quantitative limit rules (QLR)
 Decreasing Regulation




                           Japan
                          Australia      - Fewer quantitative limits allows for increased
                          Canada           competitiveness
                            Italy
                                        Canada ranks 5th in the world in pension plan
                          Germany        assets managed but is in the middle of
                          Sweden         continuum between PPR and QLR
                           Other
                                         - Large Canadian plans are at a competitive
                         developing        disadvantage over large plans in USA,
                         Countries         Netherlands, UK
QLR

                                                                                            9
                     The Pension Investment Rules
                       Impact on Canadian Pension Plans

 Impose burdens and costs
      Significant additional costs and intellectual capital
       required to ensure compliance
      Canadian pension funds losing out on opportunities to
       plans and investors from other jurisdictions
      Lower investment returns (estimated between 30 – 90
       bps)
 Passive investment strategy inconsistent with goal of
  an optimal pension delivery organization
    May result in challenges to meet future actuarial liabilities
    Has been shown to create intergenerational inequity

                                                                10
                   The Pension Investment Rules
                 What is Being Done About the Rules?

Active Campaign Under Way
     Industry leadership in seeking allies for reform
     Conducting research on the impact of the rules
     Making the case to government for reform
     Seeking an immediate exemption (provincial
      government)
     Working for longer term reform (Ontario Expert
      Commission + federal government)




                                                         11
                   The Pension Investment Rules
                   OMERS Submission to the Ontario
                   Expert Commission on Pensions

Recommendations:
   Exempt jointly-sponsored pension plans from
    quantitative investment rules
   Amend PBA to consist of fundamental principles
   Exempt public sector pension plans from solvency
    funding requirements
   Provide increased authority and enhanced role for
    FSCO



                                                        12
Questions?




             13

				
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