Ontario Municipal Employees Retirement System

Ontario Municipal Employees Retirement System

February 28, 2005 11:29 ET

OMERS Reports Top Quartile Return of 12.1%



FEBRUARY 28, 2005 - 11:29 ET

OMERS Reports Top Quartile Return of 12.1%

TORONTO, ONTARIO--(CCNMatthews - Feb. 28, 2005) - OMERS announced today
that its total fund return was 12.1 per cent in 2004, a top quartile
performance that exceeded its benchmark return of 9.9 per cent. The fund
earned net investment income of $3.7 billion, compared with $3.5 billion
in 2003. Fair market value of net assets grew by $3.6 billion, an
increase of 11 per cent, to total $35.7 billion as at December 31, 2004.
The actuarial value of net assets grew to $36.8 billion from $36.0
billion as at December 31, 2003.

"A significant increase in the returns of our private market investments
combined with the continued strength of global equity markets
contributed to our strong performance," said OMERS President and Chief
Executive Officer Paul Haggis. "We are beginning to realize the benefits
of our new investment strategy and we are well-positioned to improve
returns for our members over the long term." Up to 40 per cent of the
pension fund will eventually be invested in private market assets such
as real estate, infrastructure and private equity that OMERS expects
will outperform traditional stocks and bonds over the long term.

OMERS received $1.4 billion in contributions in 2004, an increase of $1
billion as contribution rates returned to full rates in January 2004.
The pension payroll and other benefit payments totaled $1.5 billion, an
increase from $1.4 billion in the previous year.

2004 Accomplishments

OMERS made good progress on the new investment strategy and business
model announced in February 2004. It now has four investment operating
groups that focus on specific areas with specialized expertise - public
markets, private equity, infrastructure and real estate. Each of these
operating units is directly accountable for its results.

Overall, public markets had a good year, posting a return of 10.3 per
cent and exceeding the benchmark of 9.5 per cent. In particular, the
non-Canadian equities and fixed income operations were strong

Private equity investments were consolidated under the OMERS Capital
Partners banner in 2004 and recorded a significant recovery after market
value adjustments and foreign exchange losses that were realized in 2003
and posting a return of 12.5 per cent. The group experienced good deal
flow in 2004 with OMERS Capital Partners funding investments of nearly
$600 million during the year. The long-term target equity in this asset
class is in the range of 10.0 per cent of the fund.

OMERS infrastructure assets are now consolidated under the Borealis
Infrastructure banner. Borealis' mandate is the origination and
management of infrastructure assets for OMERS and its infrastructure
investment partners. The group had an unusually strong year in 2004 with
a return of 31.0 per cent resulting from higher earnings and favourable
market value adjustments on several investments. Strong deal flow was
originated during the year, with total commitments of approximately $900
million in 2004, most notably the announcement of a 25 per cent interest
in National Grid Transco's Scotland and South England Gas Distribution
Networks. The long-term target equity in this asset class is in the
range of 15.0 per cent of the fund.

Responsibility for OMERS real estate assets has been consolidated under
Oxford Properties Group. Oxford showed a solid recovery in 2004 after a
series of market value adjustments and writeoffs recorded in 2003.
Buoyed by strong valuation trends and operational improvements, Oxford
reported a return of 11.0 per cent. The group made some adjustments in
the portfolio, selling certain non-core office assets in order to
position themselves to achieve higher returns going forward. The
long-term target equity in this asset class is 12.5 per cent to 15 per
cent of the fund.

The Plan's Funding Status

Each year, an independent actuary determines the plan's funding status
by comparing the actuarial value of invested assets to the current value
of the pension benefits that members have earned to date. The value of
assets is affected by investment returns, while inflation, wage
increases and trends in demographics affect the projected value of
future benefits.

Like other pension plans, OMERS has been impacted by a number of factors
that have resulted in depletion of the surplus. Key among them was the
downturn in the markets in 2001 and 2002. To determine the actuarial
value of assets, OMERS amortizes the losses and gains of investment
returns, to the extent that they vary from the long-term return
assumption, over five years, a process known as actuarial smoothing. The
recognition of the losses incurred in 2001 and 2002, although mitigated
by higher investment returns for the last two years, has resulted in a
deficit of $963 million for the basic plan in 2004, compared to a $509
million pension surplus at the end of 2003. According to the independent
actuary, a funding deficiency of approximately $2.5 billion could emerge
by the end of 2005 as investment losses primarily due to the above
mentioned stock market downturn are recognized in the actuarial
smoothing process.

OMERS provides retirement benefits to about 350,000 active and retired
members on behalf of 900 local government employers across the province.
Visit the OMERS website at www.omers.com for more information.

Note: OMERS 2004 Annual Report will be available in April 2005.

2004 Rates of Return, Benchmarks and Asset Exposure

Return Benchmark Total Fund
% % Net Asset
31, 2004)
$ Billions
Public Markets
Canadian interest bearing investments 7.5 6.8 6.9
Real return bonds 17.6 17.5 1.2
Canadian public equities 14.2 14.4 8.0
Non-Canadian public equities 11.5 10.7 13.0
Total Public Markets 10.3 9.5 29.1
Private equity 12.5 1.8(i) 1.5
Infrastructure 31.0 1.8(i) 1.3
Real estate 11.0 7.2 3.8
Total 12.1 9.9 35.7

(i)Benchmarks were established based on initial plans to make
development investments in these asset classes. That phase of investment
has been completed and revised benchmarks going forward have been
established. For 2005 the benchmarks are 11.8 per cent and 7.6 per cent
respectively for infrastructure and private equity.


Contact Information

    Debbie Oakley
    Senior Vice-President
    Corporate Affairs (416) 369-2402
    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.