Asset Allocation and Exposure

OAC mitigates risk and targets strong, consistent returns by diversifying investments across asset type, economic sector and geographic market, and by purchasing high-quality assets.

OAC has a Board-approved target asset mix for the Plan (updated in December 2016), designed to deliver returns over the long term to provide secure and sustainable pensions. Fixed Income investments include securities in inflation-linked bonds, government bonds and credit. Equity includes both public and private equities, either through the purchase of instruments directly, or through the use of derivatives. OAC also invests in Real Assets, which includes both infrastructure and real estate – selected specifically for their ability to provide more predictable returns and cash flows.

Asset Mix – Exposure

To arrive at the Plan's ultimate exposure by asset class, the asset mix includes derivatives exposure and other items, such as amounts payable under administered funds. Net investment asset exposure, based on the holdings as set out in the Consolidated Financial Statements and, after all allocations, is as set out in the table below. The inclusion of derivatives exposure is reflected in each asset class, with an offset to economic leverage. Economic leverage is the difference between the exposure to an asset class and the fair value of the derivative in the asset class. Net investment asset exposure at the end of 2017 was $96.4 billion ($86.4 billion, 2016) and includes administered funds of $1.4 billion ($1.2 billion, 2016) and non-investment related items of $(0.2) billion ($(0.2) billion, 2016).

As at December 31,

  2017       2016      
  Investment
Assets
$ millions
Investment
Liabilities
$ millions
Net
Investment
Asset
Exposure
$ millions
Asset Mix
%
Investment
Assets
$ millions
Investment
Liabilities
$ millions
Net
Investment
Asset
Exposure
$ millions
Asset Mix
%
Fixed Income                
Inflation-Linked Bonds $ 3,855   $ 3,855 4.0 % $ 5,242   $ 5,242 6.1 %
Government Bonds 6,754   6,754 7.0 9,632   9,632 11.2
Credit 17,653   17,653 18.3 15,139   15,139 17.5
Equities                
Public Equity 32,522   32,522 33.7 24,038   24,038 27.8
Private Equity 11,521   11,521 12.0 11,730   11,730 13.6
Real Assets                
Infrastructure 17,044 (1,365) 15,679 16.3 16,462 (1,720) 14,742 17.0
Real Estate 14,932 (1,172) 13,760 14.3 14,107 (1,489) 12,618 14.6
Short Term Instruments                
Cash 13,753   13,753 14.2 15,919   15,919 18.4
Economic Leverage 19,099)   (19,099) (19.8) (22,650)   (22,650) (26.2)
Total $ 98,935 $ (2,537) $ 96,398 100.0% $ 89,619   $ 86,410 100.0%

In 2017 we shifted the Plan's asset mix, reducing its exposure to inflation-linked bonds and government bonds. We also increased our exposures to public equities and credit, and proactively reduced economic leverage as asset prices increased.

Country Exposure

The chart below represents the total of the Plan's exposure by country. While Canada continues to offer strong, long-term investment opportunities, prudence and related risk management practices make it necessary to diversify investments across global markets with different growth profiles. During 2017 we increased exposure to Canada and emerging markets, and reduced exposure to the U.S. economy.

Fund Exposure

1Exposures are presented net of financial leverage and before economic leverage.

Currency Exposure

As at December 31, 2017, 95% of currency exposure on our foreign investments was hedged to Canadian dollars. During 2017 foreign exchange losses of $2.1 billion were offset by hedging gains of $2.1 billion. This compared to foreign exchange losses of $3.1 billion, which were offset by hedging gains of $2.9 billion in 2016.

Industry Exposure

The OMERS portfolio remains highly diversified across industries. The table below shows OMERS investment exposure by industry, net of financial leverage and before deducting economic leverage.

As at December 31,

  2017 2016
Financials 16.9% 14.5%
Real Estate 13.3% 12.2%
Cash and Cash Equivalents1 11.8% 12.8%
Industrials 10.0% 10.2%
Government 9.2% 13.1%
Utilities 9.0% 8.2%
Consumer Discretionary 6.6% 7.5%
Information Technology 6.3% 5.5%
Energy 5.2% 4.7%
Health Care 4.8% 3.9%
Consumer Staples 3.0% 3.3%
Materials 2.4% 2.9%
Telecommunication Services 1.5% 1.2%
Total 100.0% 100.0%