The CPPIB programs two portfolios. You are the reference standard portfolio, consisting of standard asset classes. The other is the actual profile, which deviates from the standard in specific investments so that they can outperform the benchmark, but that the managers aim to keep within the same risk guidelines still. The CPPIB is still in savings mode, with about ten years till it will need to begin drawing on its investment portfolio to partially fund CPP payments.
Meantime there is an online inflow of funds as CPP collection from paycheques exceeds payments away. We’ll call this analogous for a person as “retiring in a decade”. The OMERS and OTTP, in contrast, already have significant amounts of retired users and outflow surpasses inflows. This situation we’ll call “retired with a part-time job”.
The key lead to note (see comparison chart below) would be that the CPPIB has a much higher allocation to equities – about 2/3rds in its benchmark – than OMERS and OTTP, which each have in regards to a 50% allocation. Like a pattern, the best three follow the familiar advice – when in retirement, the equity allocation down will go.
There is also the fact that, even in retirement, the equity allocation remains considerable. All three pension programs make protection against inflation an explicit key investment goal and they target various types of resources that they obviously feel can help achieve that. Because of this Real Return Bonds, Infrastructure (utilities, pipelines, water systems, international airports, seaports, toll-roads), and Real Estate are in every their portfolios. The OTTP provides investments generally Commodities and in Timberland to the inflation-protection category.
- Accountable Care Organization (ACO)
- Last Month Price Signals “Sell”
- Crime continues to be relatively low, especially when compared to its counterparts and “competition”
- ► March 2007 (20)
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OMERS and OTTP that once we noted are in retirement mode already. This reflects the known fact that one of the main retirement risks to income is inflation, even at the regular 2% rate we’ve been experiencing going back fifteen years and that all three assume will continue. Among the valuable and important promises of most three plans is CPI-indexed income. As life expectancies have gone up (and retired teachers live longer than the overall population based on the OTTP), the cumulative long-term ramifications of inflation on quality lifestyle can be extremely debilitating. Isn’t security against inflation, what most of us would desire too?
There is a divergence of considering amongst the three pension funds as to whether it’s beneficial to hedge contact with foreign currency fluctuations through foreign investments, which all three have in huge amounts. The CPPIB and OTTP hedge only minor portions relating to certain elements of their portfolios – CPPIB’s international government bonds and some of OTTP’s international real property. The OMERS, on the other hands, hedges a great deal – about 40% of its foreign equity portfolio. Readers may recall from our earlier post Foreign Investments: to Hedge or Never to Hedge Currency that we now have pros and cons to each strategy.
These funds utilize some investment strategies that are not open to the average individual investor, the two key ones being absolute come back strategies and private collateral. Private equity simply means that the money to make investments money directly, mostly in equity though a bit also as lending, through direct private placements. The diversified and risk-controlled portfolios of CPPIB, OTTP, and OMERS can provide as helpful information and a benchmark for our own earnings.