How much does a pension plan's "personality" contribute to its return profile?
News report: “HOOPP’s returns defy market trends“
This headline caught my eye, and not just because it reflected more good news for the local contingent of high profile Canadian pension plans. HOOPP is one of those larger-sized plans that always seems to march to its own drummer. The current investment strategy was designed years ago by then CIO Jim Keohane and former PE head Andy Moysiuk, among others, and the team has appropriately stuck to their guns throughout the post-2000 era. HOOPP was one of the first local pension plans to get actively involved in the business of being a GP, for example (think Argosy Bridge Fund in 2004). Something that is now commonplace at OMERS and AIMCO with their venture, PE and infrastructure teams. Whether or not this trailblazing approach drove HOOPP’s outsized returns in 2014 is difficult to analyze, and it may well have been more about bonds than anything particularly fancy like a direct investment strategy (from the Globe):
One move the pension plan made was to increase its exposure to long-term government bonds, with the view that the bonds would appreciate if long-term interest rates declined. This was a major benefit in 2014, as HOOPP posted a surplus of nearly $14-billion.
The FTSE TMX long bond index appreciated 17.5% last year, despite the fact that a 30 year bond will earn you interest of just 2.23% per annum right now. For years, Bay Street chatter has suggested that HOOPP’s fixed income portfolio was “triple-levered.” If that’s in fact true, it would definitely explain why HOOPP’s performance beat some of its contemporaries by 700 bps. So goes the bond market, so goes the return.
As “personalities” go, HOOPP is just one of several large Canadian plans that appear, at least to outsiders, to reflect the man at the top (sadly, there aren’t any women in my sample). As CEO of OMERS, Michael Nobrega steered the organization to be more of a high quality deal shop than a passive market player; investments in Bruce Power, OMERS Ventures, Porter Airlines and the huge capital allocated of Oxford Properties reflect his early imprint. The current CEO, Michael Latimer, is putting his own stamp on the place as he sets up the $72 billion plan to ensure its resilience over the long term — in all market conditions.
The analytical mind of Caisse de Depot CEO Michael Sabia has certainly been a key factor at that plan’s stabilization and turnaround, just as the crazy professor bent of former AIMCO CEO Leo de Bever served to delight/horrify crowds when he’d go off script about the merits of venture capital or PE at an industry conference. The mirror image of de Bever’s free-forming, of course, is the “zip-locked mouth” approach at CPP Investment Board regarding the disclosure of anything but great news at Canada’s largest capital pool — a policy that could only have been crafted at the top of that house (see representative prior post “12 questions CPP Investment Board won’t be answering on BNN today” Jan. 17-13).
As the years pass, I’ve becoming increasing amazed at how these huge organizations, with billions of dollars of pension assets under management, can often seem to take on the personality of the Top Dog; in the same way a sports team can often reflect the traits of its owner. I’m not saying that’s a bad thing. Far from it. You’d expect it to be a common occurrence with a hedge fund, PE shop (such as Newton Glassman or Anthony Munk) or with a wonderfully big personality like Tim Draper in the VC world.
But in the staid pension fund world? Who knew?
And, if I’m right, does this contribute to the plan’s overall return for its beneficiaries? Maybe, maybe not. There’s probably a PhD thesis in there somewhere, either way.
(disclosure: this post, like all blogs, is an Opinion Piece)