In an increasingly sophisticated investment world, one of the best ways to tackle uncertain markets is through economies of scale. A larger base of assets means better opportunities - which is why we are looking to pool our assets through the new Investment Management Corporation of Ontario (IMCO).
The Financial Benefits to Asset Pooling
The approximate combined asset pool expected to be invested by the Investment Management Corporate of Ontario.
The amount that could be added to the Plan's assets (enhancement to funded status) assuming as average increase of 0.25% per year in annual investment returns for 15 years.
In our 25 years administering the Plan, we've realized, first-hand, the significant investment value of partnering with large, world-class organizations that have long-term views similar to ours.
That's why we continue to take a lead role in creating an asset pooling arrangement with the Workplace Safety and Insurance Board (WSIB) - an initiative we expect to be operational in 2017. OPB expects that by spring 2017, IMCO will be operating as an independent investment manager for its first clients, OPB and WSIB, with investment and investment finance staff from both organizations, as appropriate, moving over to IMCO.
The combined pool of approximately $50 billion would:
- enable OPB to have access to top investment talent;
- enhance our investment decisions with strong research and risk management capabilities;
- greatly increase our ability to invest directly in high-quality opportunities; and
- help us realize higher risk-adjusted investment returns.
We believe asset pooling will boost investment returns, and even a small increase could have a significant impact. For example, if OPB were able to increase its annual investment returns by 25 basis points (1/4 of 1%) above the Plan's 5.95% discount rate, this would add approximately $2.0 billion to the funded status of the Plan at the end of 15 years.
About the Investment Management Corporation of Ontario (IMCO)
As an independent statutory corporation, IMCO will provide investment management and advisory services to various Ontario broader public sector entities and funds to improve the overall risk-adjusted returns of its participants through the pooling of assets owned by them. OPB and WSIB are expected to be the first two members.
IMCO will invest OPB's assets in accordance with an Investment Management Agreement that will reflect OPB's investment philosophies and beliefs, investment policies and asset allocation targets (i.e., asset mix). OPB will not assume any liabilities of other IMCO members and there will not be any merger of the pension plans. Furthermore, IMCO will be a not-for-profit entity and operate on a cost-recovery basis.
One of our requirements to move forward with asset pooling was that OPB have governance influence over IMCO, which we have achieved by structuring it as a membership entity. As members, OPB and WSIB will have the right to appoint the majority of the initial board members (two members per organization, or four positions on the seven-member board).
What asset pooling means to OPB
The pooled assets would be managed by a new investment manager, IMCO. OPB, however, will continue to own the assets of, and maintain its fiduciary responsibility to, the Plan. We will also maintain control of the strategic asset mix decisions and be responsible for its pension obligations and liabilities. OPB will also continue to maintain appropriate levels of internal investment competency, including a Chief Investment Officer (CIO), to manage and oversee the relationship with IMCO and report directly to OPB's Board.