Ontario Municipal Employees Retirement System

Ontario Municipal Employees Retirement System

February 25, 2008 11:30 ET

OMERS Reports 2007 Top-Quartile Returns of 8.7 Per Cent

TORONTO, ONTARIO--(Marketwire - Feb. 25, 2008) - OMERS announced today that its total rate of return was 8.7 per cent in 2007, a top-quartile performance that exceeded its benchmark return of 5.6 per cent. The incremental value that OMERS generates above its benchmark is the direct result of the expertise of OMERS investment professionals. In 2007, this incremental value was approximately $1.4 billion and over the last four years OMERS active management has added approximately $4.2 billion of value to the Fund. This is the fourth consecutive year that returns have exceeded the benchmark by over 200 basis points.

Net assets grew from last year's close of $47.6 billion to $51.5 billion in 2007. This increase was due to strong performance in real estate, infrastructure and private equity investments but was tempered by lower returns in the more volatile public market investments.

"OMERS strong 2007 returns were due to the successful execution of our active management investment strategy, anchored by the strong returns realized by the three private market lines of business - real estate, infrastructure and private equity," said John Sabo, Chair of the OMERS Administration Corporation Board of Directors.

OMERS has an asset mix program designed to create a balance between its private investments and public markets while achieving stable returns over the long-term to meet its pension obligations. During 2007, OMERS increased the long-term asset mix target for private markets from 37.5 per cent to 42.5 per cent and decreased the target for public market investments from 62.5 per cent to 57.5 per cent.

Since 2003 OMERS has increased its exposure to private market investments from 17.8 per cent to 29.8 per cent at the end of 2007 and reduced its exposure to public equities and interest bearing investments from 82.2 per cent to 70.2 per cent. OMERS investment professionals are managing this shift by constantly monitoring the asset mix and making the necessary adjustments to investments to achieve the target investment levels in a prudent manner, subject to market conditions and investment opportunities.

The OMERS Primary Pension Plan (the Plan) received $1.9 billion in pension contributions in 2007, compared to $1.8 billion in 2006. Pension and other benefit payments totaled $1.8 billion, an increase of $0.1 billion over 2006.

"In 2008, OMERS could experience a situation that underscores our need for greater access to and control over our investments to ensure stable, long-term cash returns. For the first time in our history, outside of times when there was a contribution holiday, our pension payments are expected to exceed contributions to the Plan. As cash returns from investments will be required to cover this increasing demand, OMERS urgently needs the Ontario government to lift the investment rule that restricts pension funds from owning more than 30% of the voting shares of a company which, among other constraints, limits OMERS ability to control dividend distributions from our investments," said Michael Nobrega, OMERS President and CEO, repeating the message he delivered to the Ontario Expert Commission on Pensions in October 2007 where he urged revision of the Pension Benefits Act to abolish costly investment rules for pension funds.

2007 Accomplishments

OMERS has four primary investment businesses - public markets, private equity, infrastructure and real estate.

Net investment income

(Billions) 2007 2006
Public markets $ 1.7 $ 4.9
Private equity 0.5 0.3
Infrastructure 0.6 0.4
Real estate 1.2 1.0
4.0 6.6
Income credited to administered funds (0.1) (0.1)
Net investment income $ 3.9 $ 6.5

Public markets, now operating under the banner of OMERS Capital Markets, generated net investment income of $1.7 billion compared with $4.9 billion a year earlier. The decrease from the prior year is attributable to significantly lower returns in Canadian and non-Canadian public equity markets. Public markets also benefited from not having any write downs from asset backed commercial paper during 2007. The decision to not hold these instruments resulted from a risk management assessment made early in the year.

Private equity investments through OMERS Capital Partners, generated net investment income of $0.5 billion, compared with $0.3 billion last year. Income and returns continued to be strong in 2007, driven by strong gains in both direct investments and externally managed private equity fund holdings. During 2007, private equity investments increased from $3.0 billion to $3.6 billion and our private equity asset mix exposure now accounts for approximately 7.4 per cent of net investment assets with a long-term goal of 10.0 per cent.

Infrastructure investments, through Borealis Infrastructure, generated net investment income of $0.6 billion, compared with $0.4 billion a year earlier. Net investment income increased $0.2 billion in 2007 compared with 2006 as a result of unrealized gains recognized on investments made within the past three years. At December 31, 2007 we had $8.4 billion invested in infrastructure assets, an increase of $2.8 billion over the prior year. Our asset mix exposure to infrastructure increased from 7.9 per cent in 2006 to 9.9 per cent at the end of 2007 and we are progressing toward our long-term goal of 20.0 per cent.

OMERS real estate operations under Oxford Properties Group generated net investment income of $1.2 billion, including operating income of $0.4 billion after interest expense. Oxford's real estate assets were valued at $10.9 billion at December 31, 2007, an increase of $2.4 billion from 2006. Our asset mix exposure to real estate increased to 12.5 per cent at December 31, 2007 compared with 10.3 per cent in 2006 due to net acquisitions during the year and favourable market valuation increases.

Each year an independent actuary determines the funding status of the Plan by comparing the actuarial value of invested assets to the estimated present value of all pension benefits that members have earned to date. On December 31, 2007, the estimated actuarial value of the liabilities of the Plan was $46.8 billion, compared with $44.2 billion a year earlier. The Plan had an actuarial value of net assets of $46.9 billion in 2007 compared with $41.8 billion in the prior year. This resulted in a funding surplus of $0.1 billion as at December 31, 2007, compared with a deficit of $2.4 billion as at December 31, 2006. This funding surplus is primarily due to investment returns that have exceeded the assumed actuarial rate of return since 2003. The fair market value of the assets of the Plan (i.e. before actuarial smoothing) at the end of 2007 was $4.6 billion above the actuarial value of those assets.

In 2007, OMERS Pension Division continued to be a service leader in the industry while meeting the retirement needs of approximately 380,000 members represented by more than 40 umbrella groups covering unions and associations and hundreds of locals across the province, on behalf of over 900 local government employers.

This news release contains the year end financial results of the OMERS Administration Corporation. The 2007 Annual Report will be available in spring 2008 and will include the financial statements of both the OMERS Administration Corporation and the OMERS Sponsors Corporation. Forward-looking statements are subject to inherent risks and uncertainties, general and specific, which may cause actual results to differ from the expectations expressed in these statements.

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